Question
Suppose Ciscos current stock price is $80 and it is expected to either rise to 120 or fall to 60 by next April (assume 6-months
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Suppose Ciscos current stock price is $80 and it is expected to either rise to 120 or fall to 60 by next April (assume 6-months from today). Also assume you can borrow at the risk-free rate of 3% per 6 months. Using the binomial approach, what would you pay for a call option on Cisco that expires in 6-months and has a strike price of $100? A strike of $105? A strike of $110? What is the risk neutral probability of the up state, p?
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Single Stock Futures
Authors: Patrick Lafferty
1st Edition
007159003X, 978-0071590037
