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Alibaba Group (9988) is trading at $110 per share. The stock is anticipated to pay no dividends. It has an annualized volatility of 45%. The
Alibaba Group (9988) is trading at $110 per share. The stock is anticipated to pay no dividends. It has an annualized volatility of 45%. The interest rate is 5% per annum with continuous compounding. Consider a 3-month American put option on Alibaba with a strike of $110. Construct a 2-period binomial model to answer the following questions.
Determine the risk-neutral probabilities. Compute the American put price at each node. (8 marks)
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