Question
A stock price is currently $40.The riskfree interest rate is 12% per annum with continuous compounding.Annualcontinuously compounded volatility is10%.Construct a binomial tree for two periods
A stock price is currently $40.The riskfree interest rate is 12% per annum with continuous compounding.Annualcontinuously compounded volatility is10%.Construct a binomial tree for two periods and calculate the value of the options by working backthrough the binomial tree.
a) What is your replicating portfolio today for a 6-month European put optionwith a strike price of $42?
b) What is the value of a 6-month European put option with a strike price of $42?
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Fundamentals of Multinational Finance
Authors: Michael H. Moffett, Arthur I. Stonehill, David K. Eiteman
5th edition
205989756, 978-0205989751
