Question
Consider a European call option on a nondividend-paying stock. This option is priced using a two-period binomial tree. You are given: (i) The option expires
Consider a European call option on a nondividend-paying stock. This option is priced using a two-period binomial tree. You are given:
(i) The option expires in two years.
(ii) The continuously compounded risk-free interest rate is 9%.
(iii) The current price of call option is $3.89.
(iv) The payoff of the call option at each of the three terminal nodes are: CUU=10, CUD=2, CDD=0
Calculate the risk-neutral probability of an up-move:
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Global Corporate Finance A Focused Approach
Authors: Kenneth A. Kim
1st Edition
9814335827, 9789814335829
