Question
A stock is currently traded at $60. The standard deviation of the stock return is 30% per annum. The riskless interest rate is 5% per
A stock is currently traded at $60. The standard deviation of the stock return is 30% per annum. The riskless interest rate is 5% per annum. The terminal payoff of the derivative is specified as:
Payoff = 3 ST + 10
(i) Suppose that the derivative is a knock-out option with one year remaining. The barrier is set at $80. Construct a four-step binomial tree to price this barrier option.
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Personal Finance
Authors: Jeff Madura, Hardeep Singh Gill
3rd Canadian Edition
978-0133035575, 133035573, 978-0133970524, 133970523, 978-0134040042
