Question
Suppose that the current stock price of Coinbase (COIN) is $350 per share. The continuously compounded risk-free rate is 1% per annum, and the volatility
Suppose that the current stock price of Coinbase (COIN) is $350 per share. The continuously compounded risk-free rate is 1% per annum, and the volatility (i.e., the standard deviation) of COIN's returns is estimated to be 47.5% per annum. You are thinking about purchasing a put option on COIN stock with a strike price of $250 per share and an expiration date of one year from today. What is the price of this put option according to the Black-Scholes option-pricing model?
Also,
Consider a two-period binomial tree with the following characteristics:
- Each period is one year
- The current price of a non-dividend paying stock is $20 per share
- The stock can rise by 28.5% each year (i.e., u = 1.285)
- The stock can decline by 15% each year (i.e., d=0.85)
- The risk-free interest rate is 1% per annum
What is the price of an American call option on this stock with a strike price of $20 that matures in two years from today?
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