An equity index call option with an exercise price of $105 will expire in 9 months....

 

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An equity index call option with an exercise price of $105 will expire in 9 months. The index is worth $98 and has a standard deviation of 0.20 (20%). the index's annual dividend yield (g) is 2%. the annual risk-free rate is 5%. the length of one binomial period (At) is 3 months or .25 year. A. Estimate the call price today (C) from the Three-period Binomial model. B. Find the price of an equivalent European put from the binomial model using put-call parity relation (Hint: use the dividend adjusted stock price (or S0 e-qT) in put-call parity) An equity index call option with an exercise price of $105 will expire in 9 months. The index is worth $98 and has a standard deviation of 0.20 (20%). the index's annual dividend yield (g) is 2%. the annual risk-free rate is 5%. the length of one binomial period (At) is 3 months or .25 year. A. Estimate the call price today (C) from the Three-period Binomial model. B. Find the price of an equivalent European put from the binomial model using put-call parity relation (Hint: use the dividend adjusted stock price (or S0 e-qT) in put-call parity)

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Quiz A 368 The Threeperiod Binomial model gives the following formula for the call price C S0Nd1 Xer... View the full answer