At least one of the answers above is NOT correct. (3 points) Create a two-time-interval binomial lattice to find the value of a Euro call option Keep 3 places to the right of the decimal point in your calculations. Let So = 86.5 stock price at t = 0 K = 90 strike price for call option r=0.0175 risk-free interest rate = 0.21 volatility T = 0.166667 expiration time (years) An Euro call option on the stock will expire att = T. Approximate the value of the option by using the binomial tree method with two time intervals, each of duration Ar=T12 Between time t= iA1 and ti+1, a value S will increase to St1 = us with probability p. or decrease to Sf+! = ds with probability 1 - p where u = @ovi = 1.0625, d = e = 0.941176, p = (1 - d)/(u - d) = 0.496884. The binomial tree of asset values is: SS = 97.65 s 91.91 S = 86.5 = 86.5 s! 81.41 Content binomial lattice... Point Lot A A (1P1) Lotto C1 Polot Lali 11 Point Suppo Nood Bipon 11P1) Loto The binomial tree of asset values is: s 97.65 S = 91.91 SO 86.5 si = 86.5 s, = 81.41 sa = 76.62 The binomial tree of European call option values is V = VI = 1.76 Vo = 5.19 V} = 0 V. = 8.59 V = 0 From the Black-Scholes formula, the true value of the Euro call option is Euro = 4.94 Hint: Google "Black-Scholes calculator online" and use one such as the ERI calculator that allows entering time to expiration in years. The error in using the binomial lattice method rather than Black-Scholes is the value C Euro - V3 = 5.01 At least one of the answers above is NOT correct. (3 points) Create a two-time-interval binomial lattice to find the value of a Euro call option Keep 3 places to the right of the decimal point in your calculations. Let So = 86.5 stock price at t = 0 K = 90 strike price for call option r=0.0175 risk-free interest rate = 0.21 volatility T = 0.166667 expiration time (years) An Euro call option on the stock will expire att = T. Approximate the value of the option by using the binomial tree method with two time intervals, each of duration Ar=T12 Between time t= iA1 and ti+1, a value S will increase to St1 = us with probability p. or decrease to Sf+! = ds with probability 1 - p where u = @ovi = 1.0625, d = e = 0.941176, p = (1 - d)/(u - d) = 0.496884. The binomial tree of asset values is: SS = 97.65 s 91.91 S = 86.5 = 86.5 s! 81.41 Content binomial lattice... Point Lot A A (1P1) Lotto C1 Polot Lali 11 Point Suppo Nood Bipon 11P1) Loto The binomial tree of asset values is: s 97.65 S = 91.91 SO 86.5 si = 86.5 s, = 81.41 sa = 76.62 The binomial tree of European call option values is V = VI = 1.76 Vo = 5.19 V} = 0 V. = 8.59 V = 0 From the Black-Scholes formula, the true value of the Euro call option is Euro = 4.94 Hint: Google "Black-Scholes calculator online" and use one such as the ERI calculator that allows entering time to expiration in years. The error in using the binomial lattice method rather than Black-Scholes is the value C Euro - V3 = 5.01