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What am I doing wrong? JJ's stock is currently trading at $41 a share. JJ's stock can either increase by a factor of 1.15321 (u=1.15321)
What am I doing wrong?
JJ's stock is currently trading at $41 a share. JJ's stock can either increase by a factor of 1.15321 (u=1.15321) or decrease by a factor of 1/u(d=0.86714) over a period of 6 months. There is a 12 month put option on JJ's stock with a strike price of $47.5. The 6 month risk free rate is 4.762%. Fill in the tree below to find the price of the put option today. * - f is the put price at each point on the tree. - Port is the value of the risk-free portfolio on the tree - S is the stock price - u and d stand for up and down respectively - Do not use continuous compounding u: 1.15321 - Do not round intermediate calculations d: 0.86714 - Hint r:4.762%1+r:1.04762X:47.5 - A negative delta means the investor takes a short position in the JJ. - A negative portfolio means the investor borrows money, i.e. sell bondsStep by Step Solution
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