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A stock price is currently $100. Over each of the next two 6-month periods it is expected to go up or down by 10%. The
A stock price is currently $100. Over each of the next two 6-month periods it is expected to go up or down by 10%. The risk-free interest rate is 7%.
(a) What is the value of a 1-year European call option with a strike price of $100? (b) What is the value of a 1-year European put option with a strike price of $100?
(c) Verify that the European call and put prices from satisfy put-call parity.
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