. Using the following information, calculate the price of a 12-month short call option using a two-step binomial tree procedure. So = £15, K = £16, r = 5% (annual), o = 30% (annual). You are given the following equations: p= u-d (1) a = erat (2) f = [pfu+ (1-p)fale-rat (5) = eo√At (3) d == (4)

. Using the following information, calculate the price of a 12-month short call option using a two-step binomial tree procedure. So = £15, K = £16, r = 5% (annual), o = 30% (annual). You are given the following equations: p= u-d (1) a = erat (2) f = [pfu+ (1-p)fale-rat (5) = eo√At (3) d == (4)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

a. Using the following information, calculate the price of a 12-month short call option using
a two-step binomial tree procedure. So = £15, K = £16, r = 5% (annual), o = 30% (annual).
You are given the following equations:
Р
a-d
u-d
(1)
a = erst (2)
f = [pfu+ (1-p)fale-rat (5)
u = eo√At (3)
d = ² (4)

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