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The current price of American Airlines stock is $6. In the next year, this stock price can either go up by $3.50 or go down
The current price of American Airlines stock is $6. In the next year, this stock price can either go up by $3.50 or go down by $2. The stock pays no dividends. The oneyear risk-free interest rate is 3% and will remain constant. a) Calculate the risk-neutral probabilities. b) Use the risk-neutral probabilities you found in part a) to calculate the price of a one-year call option on American Airlines stock with a strike price of $7.
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