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One way to extend the binomial pricing model is by including multiple time periods. Suppose Sunland, Inc., is currently trading for $100 per share.
One way to extend the binomial pricing model is by including multiple time periods. Suppose Sunland, Inc., is currently trading for $100 per share. In one month, the price will either increase by $10 (to $110) or decrease by $10 (to $90). The following month will be the same. The price will either increase by $10 or decrease by $10. Notice that in two months, the price could be $120, $100, or $80. The risk-free rate is 2.0 percent per month and strike price is $105. (Hint: To do this, first find the possible values of the option at the end of the second month. Then use those values as the payoffs to find the value today.) Problem 20.28(a1) Find the value today of a call option if the price goes from $100 to $90 during the first month. (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.25.) Value of the option $
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