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price 40$. There are two time steps and in each time step the stock price either moves up by 20% or moves down by 20%. Risk-free interest rate is 10% Find the current option price. e have u= 1.2, d=0.8, At=0.25, r=0.1. Riskneutral probability D=0.5633 e possible stock price at final nodes 57.6,38.4,25.6

price 40$. There are two time steps and in each time step the stock price either moves up by 20% or moves down by 20%. Risk-free interest rate is 10% Find the current option price. e have u= 1.2, d=0.8, At=0.25, r=0.1. Riskneutral probability D=0.5633 e possible stock price at final nodes 57.6,38.4,25.6

A First Course in Probability (10th Edition)
A First Course in Probability (10th Edition)
10th Edition
ISBN:9780134753119
Author:Sheldon Ross
Publisher:Sheldon Ross
Chapter1: Combinatorial Analysis
Section: Chapter Questions
Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...
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Example 126 Consider six months European put with a strike price 32$on a stock with current price 40$. There are two time steps and in each time step the stock price either moves up by 20% or moves down by 20%. Risk-free interest rate is 10% Find the current option price. K = 32$ So='40$ We have u= 1.2, d=0.8, At=0.25, r=0.1. Riskneutral probability p=0.5633 The possible stock price at final nodes 57.6,38.4,25.6 Thus -r 2At =1.9317 Po =(p² Puu+2p(1-p) Pud+(1-p) 2 Paa)
Transcribed Image Text:Example 126 Consider six months European put with a strike price 32$on a stock with current price 40$. There are two time steps and in each time step the stock price either moves up by 20% or moves down by 20%. Risk-free interest rate is 10% Find the current option price. K = 32$ So='40$ We have u= 1.2, d=0.8, At=0.25, r=0.1. Riskneutral probability p=0.5633 The possible stock price at final nodes 57.6,38.4,25.6 Thus -r 2At =1.9317 Po =(p² Puu+2p(1-p) Pud+(1-p) 2 Paa)
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