Question 13 (1 point) Suppose S0 = 100 and stock tree is below, rf-0, p=0.45 t=0...

 

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Question 13 (1 point) Suppose S0 = 100 and stock tree is below, rf-0, p=0.45 t=0 t=1 t=2 110.25 105.0 100.0 100.0 95.3 90.7 b) Compute payoffs for a call (with $105 strike, expires t-2) if S-100 at t-2? 5 1 Question 14 (1 point) Suppose S0 = 100 and stock tree is below, rf-0 (risk free rate), p=0.45 (risk-neutral probability). Call option with strike 105. t=0 t=1 t=2 110.25 105.0 100.0 100.0 95.3 90.7 c) Compute C_u (call price at the node (S=105, t=1})? Hint: work backward from t=2, treat it as a one-period call. 1) stock price can only go to 110.25 or 100 from 105 2) compute call payoffs for the two terminal states 3) find present value under risk-neutral probability (p) at the node (S-105, t=1] 4) rf -0 so no need to compute PV 2.4 5.25 2.9 Question 13 (1 point) Suppose S0 = 100 and stock tree is below, rf-0, p=0.45 t=0 t=1 t=2 110.25 105.0 100.0 100.0 95.3 90.7 b) Compute payoffs for a call (with $105 strike, expires t-2) if S-100 at t-2? 5 1 Question 14 (1 point) Suppose S0 = 100 and stock tree is below, rf-0 (risk free rate). p=0.45 (risk-neutral probability). Call option with strike 105. t=0 t=1 t=2 110.25 105.0 100.0 100.0 95.3 90.7 c) Compute C_u (call price at the node (S=105, t=1})? Hint: work backward from t=2, treat it as a one-period call. 1) stock price can only go to 110.25 or 100 from 105 2) compute call payoffs for the two terminal states 3) find present value under risk-neutral probability (p) at the node (S-105, t=1] 4) rf -0 so no need to compute PV 2.4 5.25 2.9 Question 13 (1 point) Suppose S0 = 100 and stock tree is below, rf-0, p=0.45 t=0 t=1 t=2 110.25 105.0 100.0 100.0 95.3 90.7 b) Compute payoffs for a call (with $105 strike, expires t-2) if S-100 at t-2? 5 1 Question 14 (1 point) Suppose S0 = 100 and stock tree is below, rf-0 (risk free rate), p=0.45 (risk-neutral probability). Call option with strike 105. t=0 t=1 t=2 110.25 105.0 100.0 100.0 95.3 90.7 c) Compute C_u (call price at the node (S=105, t=1})? Hint: work backward from t=2, treat it as a one-period call. 1) stock price can only go to 110.25 or 100 from 105 2) compute call payoffs for the two terminal states 3) find present value under risk-neutral probability (p) at the node (S-105, t=1] 4) rf -0 so no need to compute PV 2.4 5.25 2.9 Question 13 (1 point) Suppose S0 = 100 and stock tree is below, rf-0, p=0.45 t=0 t=1 t=2 110.25 105.0 100.0 100.0 95.3 90.7 b) Compute payoffs for a call (with $105 strike, expires t-2) if S-100 at t-2? 5 1 Question 14 (1 point) Suppose S0 = 100 and stock tree is below, rf-0 (risk free rate). p=0.45 (risk-neutral probability). Call option with strike 105. t=0 t=1 t=2 110.25 105.0 100.0 100.0 95.3 90.7 c) Compute C_u (call price at the node (S=105, t=1})? Hint: work backward from t=2, treat it as a one-period call. 1) stock price can only go to 110.25 or 100 from 105 2) compute call payoffs for the two terminal states 3) find present value under risk-neutral probability (p) at the node (S-105, t=1] 4) rf -0 so no need to compute PV 2.4 5.25 2.9

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