Suppose you are attempting to value a one year maturity option on a stock with volatility ( i e , annualized standard deviation) of 5 40 What would be the appropriate values for u and d if your binomial model is set up using a 1 period of one year b 4 subperiods, each 3 months c 12 subperiods, each...

Suppose you are attempting to value a one- year maturity option on a stock with volatility (

Question:

Suppose you are attempting to value a one- year maturity option on a stock with volatility ( i. e., annualized standard deviation) of σ 5 .40. What would be the appropriate values for u and d if your binomial model is set up using

a. 1 period of one year?

b. 4 subperiods, each 3 months?

c. 12 subperiods, each 1 month?

Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...