NVDA's stock (NVIDIA) is currently trading at $278. Imagine that in one year, the price of NVDA's stock can increase to either $350 or decrease to $200. Assume NVDA pays no dividends. The riskfree rate is 5.25%. Use the binomial pricing model to compute the price of a K=$225 put option that expires in one year. Interpret the replicating portfolio: what is the value of X and Y ? should we buy or short shares? Should we borrow or lend at the risk-free rate? - Draw the binomial trees for the stock and the option - Compute the payoff of the option in either state of nature - Compute the values of X and Y. Interpret X and Y. - Compute the price of the option NVDA's stock (NVIDIA) is currently trading at $278. Imagine that in one year, the price of NVDA's stock can increase to either $350 or decrease to $200. Assume NVDA pays no dividends. The riskfree rate is 5.25%. Use the binomial pricing model to compute the price of a K=$225 put option that expires in one year. Interpret the replicating portfolio: what is the value of X and Y ? should we buy or short shares? Should we borrow or lend at the risk-free rate? - Draw the binomial trees for the stock and the option - Compute the payoff of the option in either state of nature - Compute the values of X and Y. Interpret X and Y. - Compute the price of the option