4. Suppose a unit of a certain stock is worth 100 euro now and in one...
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4. Suppose a unit of a certain stock is worth 100 euro now and in one time tick can increase or decrease by 25 euro. (a) What is the value of an option to buy the stock at 110 euro after one time tick? (Assume that r = 0 and Bo= 1.) (b) Construct the (o,) portfolio and show that the final worth of the portfolio is exactly the claim value. 5. Consider the stock process in Q4. Find the price of a derivative which pays 100 if the stock ends higher than it started and nothing otherwise. 4. Suppose a unit of a certain stock is worth 100 euro now and in one time tick can increase or decrease by 25 euro. (a) What is the value of an option to buy the stock at 110 euro after one time tick? (Assume that r = 0 and Bo= 1.) (b) Construct the (o,) portfolio and show that the final worth of the portfolio is exactly the claim value. 5. Consider the stock process in Q4. Find the price of a derivative which pays 100 if the stock ends higher than it started and nothing otherwise.
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Binomial Tree B A 125 100 V2375 75 V375 25 r2 0 P 05 9 05 ... View the full answer
Related Book For
Data Analysis and Decision Making
ISBN: 978-0538476126
4th edition
Authors: Christian Albright, Wayne Winston, Christopher Zappe
Posted Date:
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