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You have an underlying asset worth 40 dollars that will either go up in value, u=e0.10, or fall in value, d=e-0.10, in one period. You
You have an underlying asset worth 40 dollars that will either go up in value, u=e0.10, or fall in value, d=e-0.10, in one period. You have a call option on this asset with a strike price of $43. Cu, which is the intrinsic value of the call when the underlying asset price goes up, is $____ and Cd, which is the intrinsic value of the call when the underlying asset price goes down, is $____. (hint use Binomial model)
a. $1.21, -$6.81
b. $4.26, $0
c. $1.21, $0
d. $3.26, -$5.76
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