Question: (a) Find a stock that does not pay a dividend. Estimate the price of a 4 or 5 month call option using binomial pricing and

(a) Find a stock that does not pay a dividend. Estimate the price of a 4 or 5 month call option using binomial pricing and the Cox, Ross and Rubinstein method of finding u and d: . Assume t = 1/12, r = .005 and that the volatility of the stock equals .30

(b) Estimate the price of a 4 or 5 month put option using binomial pricing and the Cox, Ross and Rubinstein method of finding u and d. Also, assume t = 1/12 and that the volatility of the stock is .30

(c) Compare your results to the actual bid-ask midpoints. Why are they different? Which do you think is the most accurate?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

1. (a) Find a stock that does not pay a dividend. Estimate the price of a 4 or 5 month call option using binomial pricing and the Cox, Ross and Rubinstein method of finding u and d : u=etd=1/u=et...

1. (a) Find a stock that does not pay a dividend. Estimate the price of a 4 or 5 month call option using binomial pricing and the Cox, Ross and Rubinstein method of finding u and d: U = e Vat d =...

1._(a) Find a stock that does not pay a dividend. Estimate the price of a 4 or 5 month call option using binomial pricing and the Cox, Ross and Rubinstein method of finding u and d: u=covat d=1/u = e...

It will great if I can have some help with this 1. (a) Find a stock that does not pay a dividend. Estimate the price of a 4 or 5 month call option using binomial pricing and the Cox, Ross and...

1. (a) Find a stock that does not pay a dividend. Estimate the price of a 4 or 5 month call option using binomial pricing and the Cox, Ross and Rubinstein method of finding u and d : u=etd=1/u=et...

Not sure how to do it 1. (a) Find a stock that does not pay a dividend. Estimate the price of a 4 or 5 month call option using binomial pricing and the Cox, Ross and Rubinstein method of finding u...

Please help me with this question! Any explanation or suggestion would help! Thanks in advance! 1. (a) Find a stock that does not pay a dividend. Estimate the price of a 4 or 5 month call option...

1. You are provided the following parameter values: (i) sigma (stock return annual standard deviation) = 40% maturity = 1 year (annual) risk-free rate = 10%. A. Assume the current stock price = $100,...

5 Dividends in the Black-Scholes-Merton Model (Black's Approximation) (15 points) Consider an American call option on a stock. The underlying stock has price $150 today, has annualized volatility...

What generalizations can you draw about converting a number from one base to a power of that base, e.g., from base 3 to base 9 (32) or from base 2 to base 4 (22) or base 8 (23)?

Classify each variable as qualitative or quantitative: Colors of automobiles in building Health conditions of residents in Kelana Jaya Number of graduates students in UNITAR The time it takes to run...

what are the protection from credit risk when cat bonds

On 1 March 2007 DB Limited issued R560 000 15% debentures at R98. The debentures were to be redeemed at par in four equal annual payments starting 28 February 2010. Required: Journalise the above...