Consider a stock with current price So = $60. The value of the stock at =...
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Consider a stock with current price So = $60. The value of the stock at = - 1 can take one of two values: S1,u = $100, S1,d = $40. The price of a risk-free bond that pays out $1 in period t = 1 is $0.90. time t (a) Using a one step binomial tree, write down the possible payoffs of a put option on stock S with strike K = $60 and maturity t = = 1. (b) What is the price of this put option? HINT: this calculation is very similar to what we did for a call option in the lecture notes. (c) What is the price of a call option with strike K = $60 and maturity t = 1? HINT: you can use put-call parity to find the call price. Consider a stock with current price So = $60. The value of the stock at = - 1 can take one of two values: S1,u = $100, S1,d = $40. The price of a risk-free bond that pays out $1 in period t = 1 is $0.90. time t (a) Using a one step binomial tree, write down the possible payoffs of a put option on stock S with strike K = $60 and maturity t = = 1. (b) What is the price of this put option? HINT: this calculation is very similar to what we did for a call option in the lecture notes. (c) What is the price of a call option with strike K = $60 and maturity t = 1? HINT: you can use put-call parity to find the call price.
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a The possible payoffs of a put option on stock S with a strike price K of 60 and maturity t 1 can be determined as follows If the stock price at time ... View the full answer
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