Question 2 - Part (B) [Risk-Neutral Valuation Approach]

Apply the Risk-Neutral Valuation approach with one-step binomial tree and calculate the value of a European CALL option on SPY with an exercise/strike price of $470 (i.e., K = $470) and T = 0.25.

Verify that the Risk-Neutral Valuation approach can provide the same result as in Part (A) of Question 1.

Note: your answers should show all of the complete steps, formula, and calculations as follows:

Step 1 calculation of Risk-Neutral Probability (p) with binomial tree of the option price

Step 2 calculation of Risk-Neutral Valuation

Final result of the No-Arbitrage Option Price (based on the Risk-Neutral

Valuation Approach).