Question
DBC current stock price $625. It will either increase 15% or decrease 20% in one month. If stock price increases in the first month,
DBC current stock price $625. It will either increase 15% or decrease 20% in one month. If stock price increases in the first month, it will either increase 30% or decrease 15% in the second month. If stock price decreases in the first month, it will either increase 10% or decrease 20% in the second month. The monthly risk-free rate is 2%. a) Using risk neutral probability approach, calculate the price of a 1-month call option, with exercise price of $625, on DBC's stock. b) Using replication portfolio approach, calculate the price of a 2-month put option, with exercise price of $625, on DBC's stock.
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