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Consider a 3-month put option. Suppose that the underlying stock price is $16, the strike $15.5, the interest rate is 10% p.a., stock volatility is
Consider a 3-month put option. Suppose that the underlying stock price is $16, the strike $15.5, the interest rate is 10% p.a., stock volatility is 5% per month
a)Assume that:
dt = 0.0833
u = 1.0513
a = 1.0084
p = 0.5711
What is the probability of stock price going down?
Suppose that dynamics of the stock price process can be represented by the following binomial tree:
B. compute the price of the european put option using a 3 step binomial tree.
c. Compute the price of the American put option using a 3 step binomial tree.
16.000 16.820 15.220 17.683 16.000 14.477 18.589 16.820 15.220 13.771Step by Step Solution
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