A binomial tree is used to value a European call option. The strike price is $90 and the option expires 6 months from now. The underlying stock price is modeled by a binomial tree with volatility o = 0.2, time step dt = 0.25, and number of time steps n = 2. The risk-free interest rate is %3D r = 0.04. (a) Find p, q, u and v. (b) If the current stock price is $100, find the current value of the option.

A binomial tree is used to value a European call option. The strike price is $90 and the option expires 6 months from now. The underlying stock price is modeled by a binomial tree with volatility o = 0.2, time step dt = 0.25, and number of time steps n = 2. The risk-free interest rate is %3D r = 0.04. (a) Find p, q, u and v. (b) If the current stock price is $100, find the current value of the option.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section20.A: The Black-scholes Option Pricing Model

Problem 1P

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