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The current price of a (non-dividend-paying) stock is $120. In a year's time, the stock price will either go up by 15% with probability 1/3
The current price of a (non-dividend-paying) stock is $120. In a year's time, the stock price will either go up by 15% with probability 1/3 or go down by 7% with probability 2/3. The risk-free force of interest per annum is 5%. Use the binomial model to determine the current price of a European put option on this stock with maturity one year from now and strike price $125.
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