Calculate the American call price using the two-period binomial model. The current stock price is 50 and the exercise price is 55. The option expires in 25 days and volatility is 75%. Would the European call have a different price? If so, would it be higher or lower? (You do not have to draw the stock price path and the call price path but clearly show the answer for each part) Round to 4 decimals Show all the calculations.

The adjusted risk-free rate is .0017

u = 1.1489

d = .8704

Using the information from the prior problem show how to create a riskless portfolio. Proves that it is riskless after 1 period. Round to 4 decimals for smaller numbers

I have added an example problem below.

Binomial Option Pricing Binomial probability distributions have two possible outcomes or states Conditions and Assumptions for the one period binomial option pricing model One period, two outcomes (states) o Scurrent stock price u= 1+ return if stock goes up if the stock can go up 10% then u = 1.1 O d. 1 + return if stock goes down if the stock can down by 8% then d = 1-.08-0.92 or risk free rate OR Value of European call at expiration one period later Cu= max(0, Su Cd: Max Co, Slox x) t=0 til 'us Stock price fath s ds Cu