Use a 2-step binomial tree to value a put option. All of the steps in your calculation should be shown including the calculation of P and the calculation of each of the option nodes U, D, UU, UD & DD. • Assume that at each node the stock moves up 20% or down 20%.
Use a 2-step binomial tree to value a put option. All of the steps in your calculation should be shown including the calculation of P and the calculation of each of the option nodes U, D, UU, UD & DD. • Assume that at each node the stock moves up 20% or down 20%.
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:Use a 2-step binomial tree to value a put option.
All of the steps in your calculation should be shown including the
calculation of P and the calculation of each of the option nodes U, D, UU,
UD & DD.
Assume that at each node the stock moves up 20% or down 20%.
The option expires in 2 years. The interest rate is 5% continuously
compounded.
The spot price is 100 and the option strike price is 104.
• Early Exercise is not possible with this option.
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