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A stock is currently priced at $100 with a standard deviation () of 13.48% pa. The continuously-compounded risk free interest rate is 8% per annum.
A stock is currently priced at $100 with a standard deviation () of 13.48% pa. The continuously-compounded risk free interest rate is 8% per annum. A European call option with $90 strike price and one year to expiry is written on this stock.
a) Use the delta-hedging approach and a two-step Binomial tree to value the call option.
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