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Alpha Tunis LLC, a newly publicly listed company in San Diego, is currently valued at $75. Over the next two six-month periods, analysts forecast it
Alpha Tunis LLC, a newly publicly listed company in San Diego, is currently valued at $75. Over the next two six-month periods, analysts forecast it will go up by 10% or down by 10%. The current risk free rate is 8% per year. Given that the current exercise price is $80, based on the Binomial Option Pricing model, (i) Estimate the value of one-year European call option. Clearly show the binomial trees as part of your calculations. (ii) Estimate the value of one-year European put option. Clearly show the binomial trees as part of your calculations. (iii) Demonstrate if the Put-Call parity hypothesis holds. Clearly show your workings. Please use 4 decimal places in your workings. Alpha Tunis LLC, a newly publicly listed company in San Diego, is currently valued at $75. Over the next two six-month periods, analysts forecast it will go up by 10% or down by 10%. The current risk free rate is 8% per year. Given that the current exercise price is $80, based on the Binomial Option Pricing model, (i) Estimate the value of one-year European call option. Clearly show the binomial trees as part of your calculations. (ii) Estimate the value of one-year European put option. Clearly show the binomial trees as part of your calculations. (iii) Demonstrate if the Put-Call parity hypothesis holds. Clearly show your workings. Please use 4 decimal places in your workings
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