a) Consider a binomial model with So = T = 1. What is the price of...
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a) Consider a binomial model with So = T = 1. What is the price of a digital option that pays 1 if ST≥ 102 and 0 else? 100, pu = 0.8, Pd = 0.2, r = 0, u = 1.05, d = 0.95, b) Consider a binomial model with So = 100, pu = 0.4, Pd = 0.6, r = 0, u = 1.1, T = 1. Assume that the no-arbitrage price of an at-the-money call option is 1. What is d? a) Consider a binomial model with So = T = 1. What is the price of a digital option that pays 1 if ST≥ 102 and 0 else? 100, pu = 0.8, Pd = 0.2, r = 0, u = 1.05, d = 0.95, b) Consider a binomial model with So = 100, pu = 0.4, Pd = 0.6, r = 0, u = 1.1, T = 1. Assume that the no-arbitrage price of an at-the-money call option is 1. What is d?
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a We can use the riskneutral valuation to price the digital option The riskneutral probability is gi... View the full answer
Related Book For
Fixed Income Securities Valuation Risk and Risk Management
ISBN: 978-0470109106
1st edition
Authors: Pietro Veronesi
Posted Date:
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