Question
Let S 0 = 110, K = $98 and r = 8% cont compounded, T = 0.5, = 0. Let u = 1.3, d =
Let S0 = 110, K = $98 and r = 8% cont compounded, T = 0.5, = 0. Let u = 1.3, d = 0.8 and n = 1 (1-period binomial tree model)
a) Verify that the Premium of a European Put with above strike/maturity is $4.98.
b) Suppose you observe a Put price of $6. Construct an arbitrage strategy.
c) Suppose you observe a Put price of $4. Construct an arbitrage strategy
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The Finance Book
Authors: Stuart Warner, Si Hussain
1st Edition
1292123648, 978-1292123646
