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The current spot price for a stock is $100, using a binomial model, in every period it has been determined that the probability for this
- The current spot price for a stock is $100, using a binomial model, in every period it has been determined that the probability for this stock to go up is 70%, in this case the stock will increase in value a 12 %. If the stock goes down, the value will decrease 13%. For a call option with strike price of $186 and after 12 periods:
1) Calculate the values of the factor "u" and "d".
2) Show a diagram with the binomial development of the price for 3 periods.
3) Calculate theoretically the minimum number of times the stock should go up in order to exercise the call option.
4) Calculate the probability of exercising the call option.
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