1. Consider a two-year (T=2) European put option with strike price (K= $52) and the underlying asset is non-dividend paying and current price is $50. Assuming risk free interest rate is 5%. Using two-step binomial tree model to price the put option assuming u= 1.2 d=0.8.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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Chapter17: Long-term Investment Analysis
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Option Valuation by Binomial Tree
1. Consider a two-year (T=2) European put option with strike price (K= $52) and the
underlying asset is non-dividend paying and current price is $50. Assuming risk free
interest rate is 5%. Using two-step binomial tree model to price the put option assuming
u = 1.2 d = 0.8.
2. Using two-step binomial tree model to price the European call option which based on
the same underlying asset and have the same strike price and maturity with the put
option above.
3. Using the Put-call parity to price the call option which based on the same underlying
asset and have the same strike price and maturity with the put option above.
Transcribed Image Text:Option Valuation by Binomial Tree 1. Consider a two-year (T=2) European put option with strike price (K= $52) and the underlying asset is non-dividend paying and current price is $50. Assuming risk free interest rate is 5%. Using two-step binomial tree model to price the put option assuming u = 1.2 d = 0.8. 2. Using two-step binomial tree model to price the European call option which based on the same underlying asset and have the same strike price and maturity with the put option above. 3. Using the Put-call parity to price the call option which based on the same underlying asset and have the same strike price and maturity with the put option above.
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