Due Wednesday 11/25/2020 Finance 421 (Towner) Homework 6 Problem 3: Two-stage Binomial Options Pricing (5 points) A stock with current share price of $20 can cither go up or down by $2 in each of the next two months, with up occurring 55% of the time and down occurring 45% of the time. To keep things simple, we will assume that the risk-free rate is 0%, and that you can both borrow and lend at this rate. There are call and put options traded with a strike price of $22 expiring in two months. Our goal will be to find the no-arbitrage price of both the call and the put today. S. =$24 56% S $22 55% 45% $20 Su=$20 45% S$18 45% Su = $16 (a) Find the no-arbitrage price of both the call and the put one month from now if the stock is worth $22 No arbitrage call price Co No-arbitrage put price P.: Due Wednesday 11/25/2020 Finnnce 421 (Towner) Homework 6 (b) Find the no-arbitrage price of both the call and the put one month from now if the stock is worth $18. No-arbitrage call price CA No-arbitrage put price : (e) Find the no-arbitrage price of both the call and the put today. (Hint: you'll need to use the values you found in parts (a) and (b) as your option payoffs O. and O.). No-arbitrage call price Co: No-arbitrage put price P