A European put option has a strike price of $75 and expires in six months. It is

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A Europeanputoption has a strike price of $75 and expires in six months. It is written over a stock that is currently $80, but could either increase by 5% or decrease by 5% overeachof the next two three-month periods.The risk-free interest rate is 5% per annum with continuous compounding.

i)On the binomial tree diagram below identify the stock prices in the positions indicated by the letters A to F, and the value of the put option at positions D, E and F.

ii)Calculate the price of this option today.

iii)Explain why the corresponding American put has the same value.

Posted Date: May 19, 2024 10:00 PM

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A European put option has a strike price of $75 and expires in six months. It is

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