The current stock price S. is $60 in a two-period binomial model. The stock moves up...
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The current stock price S. is $60 in a two-period binomial model. The stock moves up with u =2 and down with d = 5 in each period. Assuming the gross effective annual interest rate is a constant, g = 1.1. The resulting tree for the stock price (and its running average) looks like this: So=60 S₁ = 120 Average = 90 Sd = 30 Average = 45 Suu = 240 Average = 140 Sud = 60 Average = 75 Sdd = 15 Average = 35 For example, if the stock price is 60 and goes to 120, then the average is (60+120)/2=90. If the stock price then goes up to 240, then the average is (60+120+240)/3 = 140. a) Draw the tree with all values of a two-period European call option with strike price $100. The current stock price S. is $60 in a two-period binomial model. The stock moves up with u =2 and down with d = 5 in each period. Assuming the gross effective annual interest rate is a constant, g = 1.1. The resulting tree for the stock price (and its running average) looks like this: So=60 S₁ = 120 Average = 90 Sd = 30 Average = 45 Suu = 240 Average = 140 Sud = 60 Average = 75 Sdd = 15 Average = 35 For example, if the stock price is 60 and goes to 120, then the average is (60+120)/2=90. If the stock price then goes up to 240, then the average is (60+120+240)/3 = 140. a) Draw the tree with all values of a two-period European call option with strike price $100.
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a Draw the tree with all values of a twoperiod Europea... View the full answer
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