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You want to use the binomial tree analysis to value a 6 -month call option with a $65 strike price on Lupin Corporation. The shares
You want to use the binomial tree analysis to value a 6 -month call option with a $65 strike price on Lupin Corporation. The shares are currently trading for $70. The annualized continuously compounded riskfree rate is 3%. The volatility of the stock is 51%. You will use the Cox Ross Rubenstein method for computing the binomial tree (see slide 32 of the Ch. 13 notes for details). a) Draw the binomial tree and find the value of the option using a time step of 3 months (n=2). b) Draw the binomial tree and find the value of the option using a time step of 2 months (n=3)
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