27.6. A 6-month Asian average strike call option on a nondividend paying stock based on the arithmeticaverage of quarterly prices is modeled with a 2-period binomial tree. You are given:(1) The stock price is 60.(ii) o= 0.3(iii) The continuously compounded risk-free interest rate is 0.04.(iv) The binomial tree is constructed using forward prices.Calculate the risk-neutral probability of an option payoff greater than 0.

Volatility = 30% Risk free rate = 0.04 or 4% Stock Price = 60 2 Period Binomial Period Time Period…

A 6-month Asian average strike call option on a nondividend paying stock based on the arithmetic ge of quarterly prices is modeled with a 2-period binomial tree. You are given: ) The stock price is 60. ) o= 0.3 ) The continuously compounded risk-free interest rate is 0.04. w) The binomial tree is constructed using forward prices. alculate the risk-neutral probability of an option payoff greater than 0.

A 6-month Asian average strike call option on a nondividend paying stock based on the arithmetic ge of quarterly prices is modeled with a 2-period binomial tree. You are given: ) The stock price is 60. ) o= 0.3 ) The continuously compounded risk-free interest rate is 0.04. w) The binomial tree is constructed using forward prices. alculate the risk-neutral probability of an option payoff greater than 0.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter5: Financial Options

Section: Chapter Questions

Problem 6P: Binomial Model The current price of a stock is 20. In 1 year, the price will be either 26 or 16. The...

See similar textbooks

Similar questions

Put–Call Parity The current price of a stock is $33, and the annual risk-free rate is 6%. A call option with a strike price of $32 and with 1 year until expiration has a current value of $6.56. What is the value of a put option written on the stock with the same exercise price and expiration date as the call option?
In 1973, Fischer Black and Myron Scholes developed the Black-Scholes option pricing model (OPM). (1) What assumptions underlie the OPM? (2) Write out the three equations that constitute the model. (3) According to the OPM, what is the value of a call option with the following characteristics? Stock price = 27.00 Strike price = 25.00 Time to expiration = 6 months = 0.5 years Risk-free rate = 6.0% Stock return standard deviation = 0.49
Consider a two - period binomial model, where each period is 6 months. Assume the stock price is $75.00, \sigma 0.35, and r = 0.05. An American call option with a strike price of $80 would be exercised early at what dividend yield? () (A) 5.0% (B) 7.0 % (C) 9.0% (D) Never exercise early
Jolly shares are currently trading at $135.43 and the standard deviation of Jolly's returns is 26%. The continuously compounding risk-free rate is 2%. Using the Black and Scholes pricing formula find the premium of a European put option with a strike price of $100 expiring one year from today. Answer to 2 decimal places.
Suppose a non-dividend paying stock is trading at $175 per share and has a volatility of 20%. What is the fair price of a 3-month European call option with a strike price of $190 per share using 1 binomial period? Assume the risk-free rate is 1%. Round to the nearest $0.01.
What would be the price of a two-month European put option on a non-dividend-paying stockwhen the stock price is $68.50, the strike price is$70, and the risk-free interest rate is 5% per annum?Assume a volatility of 60% for this stock.
Consider a stock with a current price of P = $27.Suppose that over the next 6 months the stockprice will either go up by a factor of 1.41 or downby a factor of 0.71. Consider a call option on thestock with a strike price of $25 that expires in6 months. The risk-free rate is 6%.(1) Using the binomial model, what are the endingvalues of the stock price? What are the payoffsof the call option?
9. The current stock price of a company is $54.50, the continuous annual standard deviation was 53.00%, the exercise price of an European call on the stock is $58.00, the exercise price of an European put on the stock is $58.00, the time to maturity for both options is 0.43 years, and the yield on a risk-free Treasury Bill maturing on the same date at the options is 6.72%. Determine the current prices of the call and put Anwer in excel showing the workings and formula
The current price of a non - dividend paying stock is $617 and the annual standard deviation of the rate of return on the stock is 32%. A European call option on the stock expires in 0.5 years. Its strike price is $630. The risk - free rate is 2% (continuously compounded) What should be the price (premium) of the call option?
Suppose that a stock price is currently 35 dollars, and it is known that four months from now, the price will be either 51 dollars or 29 dollars. Find the value of a European call option on the stock that expires four months from now, and has a strike price of 39 dollars. Assume that no arbitrage opportunities exist and a risk-free interest rate of 10 percent.Answer =dollars.
Give typing answer with explanation and conclusion What is the lower bound for the price of a 7-month European call option on a non-dividend-paying stock when the stock price is $44.02, the strike price is $39, and the risk-free interest rate is 1.3% per annum? Report your answer in dollars and cents.
Consider a four-period binomial model in which a stock currently trades at a price of sh.30. The stock price can go up 13 percent or down 15 percent each period. The risk-free rate is 5 percent. Calculate the price of a European call option expiring in four periods with an exercise price of Ksh.32