Nonlinear Payoff Derivatives Assignment

3. Repeat the analysis of the slide 18 titled Try The Formula for a call with a strike of $110. S0 = $100 r=10% u=2 d=1/2=0.5 What is the premium? Try the problem using the risk neutral probability; also try the problem using delta and B.

4. Repeat the analysis of the last slide for a put with a strike of $110. S0 = $100 r=10% u=2 d=1/2=0.5 What is the premium? Try the problem using the risk neutral probability; also try the problem using delta and B. 2

5. Repeat the calculation for another set of parameters. S0 = $100 r=10% u=3/2=1.5 d=2/3 What is the premium on a 10% out of the money call? If the spot price is $100 then the strike on the call is $110. (1 + 10%) * $100 = 110% * $100 = $110 What is the premium of a 10% out of the money put