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Solve Q1 a) Consider a 3-period binomial model of pricing European call option. Let the initial stock price be So = 8 per share, u
Solve Q1
a) Consider a 3-period binomial model of pricing European call option. Let the initial stock price be So = 8 per share, u = 2 be up factor, d = 0.5 be down factor, r = 0.25 be rate of interest compounding per time period, K = 12 be strike price. (i) Find the initial price of the European call option. (ii) Use the put-call parity to determine the initial price of the European put option.
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Financial Markets And Institutions A Modern Perspective
Authors: Anthony Saunders, Marcia Millon Cornett, Marcia Cornett
2nd Edition
007294109X, 978-0072941098
