A stock sells today for $100. By the end of the year, it will be worth either

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A stock sells today for $100. By the end of the year, it will be worth either $110 or $95. The risk free rate is 5%.

What is the risk-neutral probability?

What would be the value of a call option on that stock with strike price X = $104?

What would be the value of a put option with strike price X = $104?

Related Book For answer-question

Introduces Quantitative Finance

ISBN: 978-0470319581

2nd edition

Authors: Paul Wilmott

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Posted Date: May 08, 2023 01:38 AM

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A stock sells today for $100. By the end of the year, it will be worth either

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SOLUTION To calculate the riskneutral probability we can use the formula Riskneutral probability of ... View the full answer

Introduces Quantitative Finance

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