Question
Consider a two-step binomial tree, where a stock that pays no dividends has a current price of 100, and at each time step can increase
Consider a two-step binomial tree, where a stock that pays no dividends has a current price of 100, and at each time step can increase by 10% or decrease by 5%. The annually compounded interest rate is 7%.
Plot the binomial tree to describe this problem.
Calculate the price of a two-year 101-strike European call using a replication argument.
Calculate the price of a two-year 101-strike European call using risk neutral pricing.
What is the price of a two-year 101-strike European put?
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