Question: L 9 illustrate how to value a call option on Matson Company with a one-perlod binomial option pricing model. It is a non-dividend-paying stock, and

L 9 illustrate how to value a call option on Matson

L 9 illustrate how to value a call option on Matson Company with a one-perlod binomial option pricing model. It is a non-dividend-paying stock, and the inputs are as follows: . The current stock price is 40, and the call option exercise price is 40. . In one period, the stock price will either rise to 45 or decline to 35. The risk-free rate of return is 5% per period. Based on the model, 1. estimate the hedge ratio 2. estimate the risk-neutral probability of an up move 3. estimate the price of the call option 4. describe related arbitrage positions to use if the call option is overpriced relative to the model

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