Question
2. A stock selling at $100 will either go up by 10% or go down by 10% each month for the next two months. The
2. A stock selling at $100 will either go up by 10% or go down by 10% each month for the next two months. The constant risk-free rate is 12% per annum with continuous compounding. The stock will pay a single fixed dividend of $10 next month.
a) What is the price of a 2-month European call option with a strike price of $90?
b) What is the price of a 2-month European put option with a strike price of $90?
c) What is the price of a 2-month American call option with a strike price of $90?
d) What is the price of a 2-month American put option with a strike price of $90?
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