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Interest rates are 0. A stock is priced at $4. In each period the stock can double or half in price. Consider a two-period call
Interest rates are 0. A stock is priced at $4. In each period the stock can double or half in price. Consider a two-period call option with strike of $3.
Below is the lattice of stock prices and European option prices in red.
(a) Use the above lattice of option prices to price a one-period compound option, that allows the holder to buy the call option for $1.00 in period one.
(b)Compute the price of a claim that at date 0 pays out the stock price squared after 1 period.
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