Question

Following is a two-period price tree for a share of stock in SAB Corp.:


Using the binomial model, calculate the current fair value of a regular call option on SAB stock with the following characteristics: X = 28, RFR = 5 percent (per subperiod). You should also indicate the composition of the implied riskless hedge portfolio at the valuationdate.


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  • CreatedDecember 17, 2014
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