You use the following information to construct a binomial forward tree for modeling the price movements of
Question:
You use the following information to construct a binomial forward tree for modeling the price movements of a stock:
(i) The length of each period is 4 months.
(ii) The current stock price is 41.
(iii) The stock’s volatility is 30%.
(iv) The stock pays no dividends.
(v) The continuously compounded risk-free interest rate is 8%.
Calculate the price of a one-year at-the-money European call option on the stock.
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The tree parameters are u 008 13 0313 1221246 and d e008130313 e Then the termi...View the full answer
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