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One Step Binomial Tree: Consider an at-the-money European call option with six months left to maturity written on a non-dividend paying stock. Let today's stock
One Step Binomial Tree: Consider an at-the-money European call option with six months left to maturity written on a non-dividend paying stock. Let today's stock price be 80 kr and the stock volatility be 35%. Furthermore let the risk free interest rate be 8%. Construct a one-step Binomial tree for the stock and calculate today's price of the European call.
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