Let S=$300, K=$300, r=10% risk-free interest rate, (continuously compounding), T=3 years, n=3, three-period binomial tree, 8=6.5%,...
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Let S=$300, K=$300, r=10% risk-free interest rate, (continuously compounding), T=3 years, n=3, three-period binomial tree, 8=6.5%, continuous dividend yield on the stock, u=1.25, and d=0.7. a) Construct the binomial tree for the stock. b) Compute the prices of American and European calls. c) Compute the prices of American and European puts by using risk-neutral approach. Let S=$300, K=$300, r=10% risk-free interest rate, (continuously compounding), T=3 years, n=3, three-period binomial tree, 8=6.5%, continuous dividend yield on the stock, u=1.25, and d=0.7. a) Construct the binomial tree for the stock. b) Compute the prices of American and European calls. c) Compute the prices of American and European puts by using risk-neutral approach.
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