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The current price of a non-dividend paying stock is $50. Over each of the next two 3-month periods, the stock price is expected to either
The current price of a non-dividend paying stock is $50. Over each of the next two 3-month periods, the stock price is expected to either move up by 10% or move down by 10%. The risk-free rate is 12% per annum with continuous compounding. Using a two-step binomial model, what is the value of a 6-month American put option on the stock with a strike price of $52? The risk-neutral probability of an up movement is 0.652.
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