Q3: Binomial Option Pricing . Non-dividend paying stock is currently worth $50 per share Each month, price of stock will either rise by 1% (so u = 1.01) or drop by 1% (so d = 0.99) Risk-free rate is 0.1% per month (so R = 1.001) Put option on one share of non-dividend- paying stock has exercise price of $50 and one year to expiration . Q3: Binomial Option Pricing Calculate risk-neutral probability of positive return for non-dividend-paying stock Use binomial option pricing model to find current price of European-style put option Use binomial option pricing model to find current price of American-style put option Q3: Binomial Option Pricing . Non-dividend paying stock is currently worth $50 per share Each month, price of stock will either rise by 1% (so u = 1.01) or drop by 1% (so d = 0.99) Risk-free rate is 0.1% per month (so R = 1.001) Put option on one share of non-dividend- paying stock has exercise price of $50 and one year to expiration . Q3: Binomial Option Pricing Calculate risk-neutral probability of positive return for non-dividend-paying stock Use binomial option pricing model to find current price of European-style put option Use binomial option pricing model to find current price of American-style put option