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A binomial tree is used to value a European call option. The strike price is $90 and the option expires 6 months from now. The underlying stock price is modeled by a binomial tree with volatility o = 0.2, time step dt = 0.25, and number of time steps n = 2. The risk-free interest rate is %3D r = 0.04. (a) Find p, q, u and v. (b) If the current stock price is $100, find the current value of the option.

A binomial tree is used to value a European call option. The strike price is $90 and the option expires 6 months from now. The underlying stock price is modeled by a binomial tree with volatility o = 0.2, time step dt = 0.25, and number of time steps n = 2. The risk-free interest rate is %3D r = 0.04. (a) Find p, q, u and v. (b) If the current stock price is $100, find the current value of the option.

Essentials Of Investments
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
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A binomial tree is used to value a European call option. The strike price is $90 and the option expires 6 months from now. The underlying stock price is modeled by a binomial tree with volatilityo = 0.2, time step St = 0.25, and number of time steps n = 2. The risk-free interest rate is r = 0.04. (a) Find p, q, u and v. (b) If the current stock price is $100, find the current value of the option.
Transcribed Image Text:A binomial tree is used to value a European call option. The strike price is $90 and the option expires 6 months from now. The underlying stock price is modeled by a binomial tree with volatilityo = 0.2, time step St = 0.25, and number of time steps n = 2. The risk-free interest rate is r = 0.04. (a) Find p, q, u and v. (b) If the current stock price is $100, find the current value of the option.
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