Question
Consider a stock with current price S=100 and standard deviation of annual returns =20%. Consider a 1-year European call option on this stock with strike
Consider a stock with current price S=100 and standard deviation of annual returns =20%. Consider a 1-year European call option on this stock with strike price of $95. The risk-free interest rate is 6%
a) Find the value of this option using Cox-Ross-Rubenstein 2-step binomial option pricing model. Hand-write your entire solution (use of calculators are allowed)
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) Using Excel or any other methods (except option price calculators), find the value of this option using Black-Scholes model
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Intermediate Accounting
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield.
9th Canadian Edition, Volume 2
470964731, 978-0470964736, 978-0470161012
