2) Consider a stock whose current price is $100 and volatility is 20% p.a. The stock...
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2) Consider a stock whose current price is $100 and volatility is 20% p.a. The stock is expected to pay a dividend of $2 in one month's time. The risk-free rate is 5% p.a. continuously compounding. (a) (3 points) Using a two-period binomial tree, what is the value of a 2-month American call whose exercise price is $101? (b) (3 points) Using a two-period binomial tree, what is the value of a 2-month American put whose exercise price is $101? 2) Consider a stock whose current price is $100 and volatility is 20% p.a. The stock is expected to pay a dividend of $2 in one month's time. The risk-free rate is 5% p.a. continuously compounding. (a) (3 points) Using a two-period binomial tree, what is the value of a 2-month American call whose exercise price is $101? (b) (3 points) Using a two-period binomial tree, what is the value of a 2-month American put whose exercise price is $101?
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a We use a twoperiod binomial tree with the following assumptions Current price at time 0 S0 100 Ris... View the full answer
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