Stocks A and B are trading at $100 and $105 respectively. Stock A has a volatility of 0.4 and stock B has a volatility of 0.3. The risk-free rate is 4% and there are no dividends. The two stocks move independently of each other. Price a derivative that pays Min(A, B) the minimum of the two stocks in 1 year. Create 1-step trees for both stocks. $82.71 $50.21 $33.45 $122.29
Stocks A and B are trading at $100 and $105 respectively. Stock A has a volatility of 0.4 and stock B has a volatility of 0.3. The risk-free rate is 4% and there are no dividends. The two stocks move independently of each other. Price a derivative that pays Min(A, B) the minimum of the two stocks in 1 year. Create 1-step trees for both stocks. $82.71 $50.21 $33.45 $122.29
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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Transcribed Image Text:Stocks A and B are trading at $100 and $105
respectively. Stock A has a volatility of 0.4 and stock B
has a volatility of 0.3.
The risk-free rate is 4% and there are no dividends.
The two stocks move independently of each other.
Price a derivative that pays Min(A, B) the minimum of
the two stocks in 1 year. Create 1-step trees for both
stocks.
$82.71
$50.21
$33.45
$122.29
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