Question
Option Valuation (10 marks) ABC corporation is a no dividend-paying stock that is currently priced at $20. An analyst has determined that the annual standard
Option Valuation (10 marks)
ABC corporation is a no dividend-paying stock that is currently priced at $20. An analyst has determined that the annual standard deviation of returns on ABC stock is 25% and the annual risk-free interest rate on a continuously compounding basis is 5%
a) Calculate the values of 6-months European Call and put option on ABC stock ith a strike price of $19 using 2 period binomial model.
b) Construct risk less portfolio and find the value of 3-months European call option on ABC Corporation stock. What would be the delta for this option?
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