Question
Consider a1 1-period binomial model withR=1.02 R=1.02,S_0 = 100 S0 =100, u=1/d= 1.05 u=1/d=1.05. Compute the value of a European call option on the stock
Consider a1
1-period binomial model withR=1.02
R=1.02,S_0 = 100
S0
=100,
u=1/d= 1.05
u=1/d=1.05. Compute the value of a European call option on the stock
with strikeK=102
K=102. The stock does not pay dividends.
When you construct the replicating portfolio for the option in the previous question how many dollars do you need to invest in the cash account?
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Fundamentals of Investment Management
Authors: Geoffrey Hirt, Stanley Block
10th edition
0078034620, 978-0078034626
