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Consider a two-year European put option with a strike price of $52 on a stock whose current price is $50. Suppose there are two time
Consider a two-year European put option with a strike price of $52 on a stock whose current price is $50. Suppose there are two time steps, and at each time step the stock price goes up 30% or goes down 30%. Let us also assume that the risk-free rate is 7% per year with continuous compounding.
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SOLUTION To calculate the value of the European put option we can use the binomial option pricing model In this model we create a binomial tree to simulate the possible stock price movements over time ...
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Data Analysis And Decision Making
Authors: Christian Albright, Wayne Winston, Christopher Zappe
4th Edition
538476125, 978-0538476126
