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A stock's price is currently 62.667. Over each of the next two three-month periods it is expected to go up by 10% or down by
A stock's price is currently 62.667. Over each of the next two three-month periods it is expected to go up by 10% or down by 10%. The risk free interest rate is 6.333% per annum with continuous compounding. What is the current value of a six month European Put option with strike price of 58.6 using a two-step binomial tree? How will you trade to make profits if the put option's current market price of 11.4, using one option in trading? *Interest rates are expressed as annualized rates 1. What is the current fair value of put option? 2. What is the value of Delta at time zero, 3 months when the stock price goes up and 3 months when the stock price goes down? 3. What is the Net Cash position (bank balance) at time zero. What is the Net Cash position at upper branch at time 3 months? At the lower branch at time 3 months? 4. What is the Net Cash position (bank balance) at the upper branch at maturity, middle branch at maturity and lower branch at maturity
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