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Consider a model in which the price of the stock can go up by a factor of 1.12 1.12 or down by a factor of
Consider a model in which the price of the stock can go up by a factor of 1.12 1.12 or down by a factor of 0.92 0.92 per period. The interest rate is 5 % 5% per period. There is a security that pays 1 , 000 1,000 after five periods if the stock goes down for five consecutive periods, and pays 40 40 if the stock goes up for five consecutive periods. Otherwise, it pays zero. what is the price of this security?
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