Let S $100, K $100, 30 , r 0 08, t 1, and 0 Let n 10 Suppose the stock has an expected return of 15 a What is the expected return on a European call option A European put option b What happens to the expected return if you increase the volatility to 50 ...

a We need to find the true probabilities for the stock going up We will use formula 114 of the main text To find u and d note that h 110 01 Now we can ...

Let S = $100, K = $100, = 30%, r = 0.08, t = 1, and

Question:

Let S = $100, K = $100, σ = 30%, r = 0.08, t = 1, and δ = 0. Let n = 10. Suppose the stock has an of 15%.
a. What is the on a European call option? A European put option?
b. What happens to the if you increase the volatility to 50%? Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...