A stock is currently traded at $60. The standard deviation of the stock return is 30% per
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Question:
A stock is currently traded at $60. The standard deviation of the stock return is 30% per annum. The riskless interest rate is 5% per annum. The terminal payoff of the derivative is specified as:
Payoff = 3 ST + 10
(iii) Suppose that the derivative is a normal European style option with one year remaining (i.e., it does not have the barrier). Without constructing a binomial tree, what is the price of this European option? Justify your answers.
Related Book For
Intermediate Financial Management
ISBN: 978-1285850030
12th edition
Authors: Eugene F. Brigham, Phillip R. Daves
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