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Suppose that the current futures price is 30 and that it will move either up to 33 or down to 28 over the next month.
Suppose that the current futures price is 30 and that it will move either up to 33 or down to 28 over the next month. The risk free rate is 6% per annum (with continuous compounding). Consider a one-month call option on the futures contract with a strike price of 29. What is the price of this option according to a one-step binomial tree model?
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