Question
A stock price is currently $100. It is known that it will be either $110 or $90 at the end of two month. The risk-free
A stock price is currently $100. It is known that it will be either $110 or $90 at the end of two month. The risk-free interest rate is 10% per annum with continuous compounding. Calculate the value of a two-month European call option with a strike price of $95.
(a) Using therisk-neutral approachof binomial tree model.
(b) Using theno-arbitrage approachof binomial tree model.
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Financial management theory and practice
Authors: Eugene F. Brigham and Michael C. Ehrhardt
12th Edition
978-0030243998, 30243998, 324422695, 978-0324422696
