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A European cash-or-nothing binary option pays a fixed amount of money if it expires with the underlying stock value above the strike price. The binary
A European cash-or-nothing binary option pays a fixed amount of money if it expires with the underlying stock value above the strike price. The binary option pays nothing if it expires with the underlying stock value equal to or less than the strike price. A stock currently has price $100 and goes up or down by 20% in each time period. What is the value of such a cash-or-nothing binary option with payoff $100 at expiration two time units in the future and strike price $100? Assume a simple interest rate of 10% in each time period.
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