Consider a non-dividend-paying stock where the spot price is $25, and its volatility is 20%, the risk-free

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Consider a non-dividend-paying stock where the spot price is $25, and its volatility is 20%, the risk-free rate is 5% per annum, the time to maturity is 6 months with two 3-month periods.

a) Calculate u, d, and the risk-neutral probability p for a two-step tree.

b) Value the European call option with the strike is $24 with the two-step tree and risk-neutral probability you get in a).

c) Implement the above process in the Python. You should insert the screenshot of Jupiter notebook here and explain code step-by-step.

d) Compare the results in b) and c) and explain.

Related Book For answer-question

Applied Equity Analysis and Portfolio Management Tools to Analyze and Manage Your Stock Portfolio

ISBN: 978-1118630914

1st edition

Authors: Robert A.Weigand

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Posted Date: Oct 16, 2020 03:30 PM

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Consider a non-dividend-paying stock where the spot price is $25, and its volatility is 20%, the risk-free

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Applied Equity Analysis and Portfolio Management Tools to Analyze and Manage Your Stock Portfolio

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