Question
Round option prices and probabilities to two decimals, round the number of shares to the nearest integer. In a one-period binomial tree the current stock
Round option prices and probabilities to two decimals, round the number of shares to the nearest integer.
In a one-period binomial tree the current stock price is $850. The stock is expected to move either 30% up or 30% down. The risk free rate is 6%.
The price of a put option with strike of $860 is . If the share price moves up, payoff from the option is and if the share price moves down, payoff from the option is .
To create a risk free portfolio, you will have to buy shares of stock for every 1000 puts long.
The risk neutral probability used to price the option is .
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