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The volatility of a non-dividend-paying stock whose price is $75, is 22%. The risk-free rate is 5% per annum (continuously compounded) for all maturities. Calculate
The volatility of a non-dividend-paying stock whose price is $75, is 22%. The risk-free rate is 5% per annum (continuously compounded) for all maturities. Calculate values for:
- Up movement factor when a two-month time step is used?
- Down movement factor when a two-month time step is used?
- Up movement probability when a two-month time step is used?
- What is the value of a four-month European call option with a strike price of $80 given by a two-step binomial tree?
- Suppose a trader sells 1,000 options (10 contracts). What position in the stock is necessary to hedge the traders position at the time of the trade?
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