In a financial market a stock is traded with a current price of 50. Next period the price of the stock can either go up with 30 per cent or go down with 25 per cent. Risk-free debt is available with an interest rate of 8 per cent. Also traded are European options on the stock with an exercise price of 45 and a time to maturity of 1, i.e. they mature next period. Calculate the price of a call option by constructing and pricing a replicating portfolio.

Q: We will derive a two-state call option value in this problem. Data: S0 = $190; X = $200; 1 + r =…

A: In the given question , we have a two state call option value in this problem,  ; X = $200 ; 1+r =…

Q: Suppose that Stock XYZ is currently trading at $50 and does not pay any dividends. Using a binomial…

A: The stock is referred to the ownership of shares in a business or corporation. A single share of…

Q: A call option with an exercise price of $10 and 3 months to maturity has a price offer of $0.75. The…

A: Exercise price is $10 Maturity is 3 months Call premium is $0.75 Current Stock price is $10.90 Risk…

Q: (Option Payoff Diagram) You hold a long position in an option portfolio. It contains an European…

A: An option is a security that allows the holder the choice to purchase or sell the underlying asset…

Q: ou are interested to value a put option with an exercise price of $100 and one year to expiration.…

A: According to put call parity theory there is certain relation ship between the Put , call and stock…

Q: The price of a one-year European call option on a non-dividend-paying stock is $6. The price of a…

A: Put-call parity states that; C - P = S - PV(K) where C is the price of the call option, P is the…

Q: What would be the price of a two-month European put option on a non-dividend-paying stockwhen the…

A: Black-Scholes formula (European put option): CPut=Ke-rtN-d2-S0N-d1

Q: Consider a European put and a European call option which are both written on a non-dividend paying…

A: Here, Strike Price is £80 Spot Price is £90 Time Period is 2 months Put Price is £21 Call Price is…

Q: Suppose you are attempting to value a 1-year expiration option on a stock with volatility (i.e.,…

A: a. 1 period of 1 year:In this case, the option will expire in exactly 1 year, so there is only 1…

Q: Consider a 3-month European call option on a non-dividend-paying stock. The current stock price is…

A: The call option is an instrument that allows its holder to buy the underlying asset at a fixed…

Q: You are given the following information. S=50, X=50, simple annual risk-free interest rate is 5%,…

A: time period =12monthsMonthly Risk-free interest rate=5%/12Stock price (S) = 50 Excercise Price (X) =…

Q: Consider a put option on a stock that currently sells for £100, but may rise to £120 or fall to £80…

A:

Q: Consider the following information on a particular stock: Stock price = $89 Exercise price = $85…

A: We have to use the blackscholes model of calculating option prices and other values. I will be…

Q: Use a 2-step binomial tree to value a put option. All of the steps in your calculation should be…

A: Here, As Early Exercise is not available in this case that means it is an European Option.

Q: A stock is currently priced at $38 and will move up by a factor of 1.3 or down by a factor of 0.51…

A: Data givenUp-move factor for next 2 periods = u = 1.3Down-move factor for next 2 periods = d =…

Q: A stock with a current price of $43 will either move up by a factor of 1.20 or down by a factor of…

A: The current value of the call option can be computed using the Present worth of expected cash flow…

Q: Suppose you wrote an European call option on Stock A with an exercise of $40 and call premium of…

A: As stock is expired out of money as we wrote the option Profit will be premium paid As there will be…

Q: in a one-period binomial model, assume that the current stock price is $100 and that it will rise by…

A: Value or price of a call option A call option provides its holder the right to buy stock at the…

Q: A stock with a current price of $20 will either move up to $22 or down to $18 over the next period.…

A: Value of an option is the price at which the option contract is trading in the derivative market. It…

Q: You are long in a put option with an exercise price of $60. What is the value of the put at…

A: Given that the exercise price is $60:If the stock price at maturity is below $60, the put option is…

Q: Consider a 4-month European put option on a non-dividend-paying share. The share price is $61, the…

A: The binomial model is a mathematical approach used in finance to value options and other derivative…

Q: An investor has just obtained the following quotes for a European call option on a non-dividend…

A: Arbitrage opportunity are the risk free opportunity that exist in the market by buying and selling…

Q: A stock is currently selling for $39. Over the next two periods, the stock will move up by a factor…

A: A call option refers to the derivative instrument that provides its holder with the choice of…

Q: Consider the one-period binomial model with a single risky asset with current price 33. Its price at…

A: Current price (S) = 33 Up price after 1 period (Su) = 35 Down price after 1 period (Sd) = 33 r =…

Q: The current price of a non- dividend paying stock is $38.52. Use a two-step tree to value a European…

A: A call option refers to a derivative instrument that provides the holder the choice to purchase the…

Q: The price of a stock is currently $50. Over the course of the next year, the price is anticipated to…

A: A call option refers to a derivative instrument that provides its holder the choice to purchase the…

Q: Use a four-period binomial model to value an American put option with a $35 strike price and three…

A:

Q: The current price of a non - dividend paying stock is $38.52. Use a two-step tree to value a…

A: Answer:The current price of a non-dividend paying stock is $38.52. We can use a two-step tree to…