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Suppose an option matures after T=1 year and has a strike price of $55, the stock price is $60. The stock price evolves according to
- Suppose an option matures after T=1 year and has a strike price of $55, the stock price is $60. The stock price evolves according to the CoxRossRubinstein specification in this two-period model, the yearly volatility is s = 0.3 and the continuously compounded risk-free interest rate is 5 percent per year.
- Compute todays European call option price in this 2-period tree.
- Assuming it is an American option when would it be optimal to exercise? Please show all the steps with formula!!
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Financial Markets And Institutions
Authors: Anthony Saunders, Marcia Cornett
5th Edition
0078034663, 978-0078034664
