Question: Let S = $100, K = $100, = 30%, r = 0.08, t = 1, and = 0. Let n = 10. Suppose

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%?

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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 ... View full answer

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