Question
Consider a two-period at the money call option written on a $10 stock that can go up or down 10 percent period when the risk
Consider a two-period at the money call option written on a $10 stock that can go up or down 10 percent period when the risk free rate is 5 percent. That is,
At t=0, stock value is S0= $10
At t=1, stock value is either Su=$11(up) or Sd=$9(down)
At t=2, stock value is Suu=$12.1 (up-up), Sud=$9.9 (up-down), or Sdd=$8.1(down-down).
What is the risk neutral probability?
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Understanding Futures Markets
Authors: Robert Kolb, James Overdahl
6th Edition
1405134038, 9781405134033
