Question
Consider a stock with current price S=100 and standard deviation of annual returns =30%. Stock does not pay any dividends. Consider a 1-year European call
Consider a stock with current price S=100 and standard deviation of annual returns =30%. Stock does not pay any dividends. Consider a 1-year European call option on this stock with strike price of $95. The risk-free interest rate is 8%.
a) Find the value of this option using Cox-Ross-Rubenstein 2-step binomial option pricing model.
b) Using Excel, find the value of this option using Cox-Ross-Rubenstein 5-step binomial option pricing model.
c) Using Excel, find the value of this option using Cox-Ross-Rubenstein 10-step binomial option pricing model. d) (3 points) Using Excel or any other methods (except option price calculators), find the value of this option using Black-Scholes model.
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International Financial Management
Authors: Cheol S. Eun, Bruce G.Resnick
6th Edition
71316973, 978-0071316972, 78034655, 978-0078034657
