Question
A stock price is currently $40. The risk-free interest rate is 12% per annum with continuous compounding. Annual continuously compounded volatility is 10%. Construct a
A stock price is currently $40. The risk-free interest rate is 12% per annum with continuous compounding. Annual continuously compounded volatility is 10%. Construct a binomial tree for two periods and calculate the value of the options by working back through the binomial tree.
a) What is the value of a 6-month European put option with a strike price of $42?
b) What is the value of a 6-month American put option with a strike price of $42?
c) What is your replicating portfolio today for a 6-month European put and American Put option with a strike price of $42?
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The Theory And Practice Of Investment Management
Authors: Frank J Fabozzi, Harry M Markowitz
2nd Edition
0470929901, 9780470929902
