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Question 4 = A stock model has the parameters u = 1.6, d = 0.4, So 18. A European call option, expiring at t =
Question 4 = A stock model has the parameters u = 1.6, d = 0.4, So 18. A European call option, expiring at t = 3, has an exercise price K = 21 and the interest rate is 5% over each period. Price this option at t = 0 using the chaining method. Draw the complete 3-period stock tree. [13 marks]
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