13A A stock price is currently $30. During each two-month period for the next four months,...

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13A A stock price is currently $30. During each two-month period for the next four months, it is expected to increase by 8% or reduce by 10%. The risk-free interest rate is 5%. Use a two-step tree to calculate the value of a derivative that pays off [max(30- Sr, 0)] where S is the stock price in four months? If the derivative is American-style, should it be exercised early? 13B A stock index is currently 990, the risk-free rate is 5%, and the dividend yield on the index is 2%. Use a three-step tree to value an 18-month American put option with a strike price of 1,000 when the volatility is 20% per annum. How much does the option holder gain by being able to exercise early? When is the gain made? 12A What trading position is created from a long strangle and a short straddle when both have the same time to maturity? Assume that the strike price in the straddle is halfway between the two strike prices of the strangle. 13A A stock price is currently $30. During each two-month period for the next four months, it is expected to increase by 8% or reduce by 10%. The risk-free interest rate is 5%. Use a two-step tree to calculate the value of a derivative that pays off [max(30- Sr, 0)] where S is the stock price in four months? If the derivative is American-style, should it be exercised early? 13B A stock index is currently 990, the risk-free rate is 5%, and the dividend yield on the index is 2%. Use a three-step tree to value an 18-month American put option with a strike price of 1,000 when the volatility is 20% per annum. How much does the option holder gain by being able to exercise early? When is the gain made? 12A What trading position is created from a long strangle and a short straddle when both have the same time to maturity? Assume that the strike price in the straddle is halfway between the two strike prices of the strangle.