Question: Create a 2-step binomial option pricing model using Excel. Assume the following: =0.25 (std dev) T=1 year (time to maturity) r=6% (risk-free rate) q=5% (dividend

Create a 2-step binomial option pricing model using Excel. Assume the following:

  • =0.25 (std dev)
  • T=1 year (time to maturity)
  • r=6% (risk-free rate)
  • q=5% (dividend yield)
  • S_0=$100
  • K=$100

The solution begins with the calculation of u, d, p, and t.

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