The price of a stock follows the binomial tree shows in Figure 1 with interest rate...

 

 

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The price of a stock follows the binomial tree shows in Figure 1 with interest rate r = 0 and dividend rate q = 0. Let X be an American call option with maturity at tick-time 2 and strike price 70. What is the fair price for X? The price movement of a stock is given by the following binomial tree. 160 140 120 100 80 60 40 Figure 1: stock price The price of a stock follows the binomial tree shows in Figure 1 with interest rate r = 0 and dividend rate q = 0. Let X be an American call option with maturity at tick-time 2 and strike price 70. What is the fair price for X? The price movement of a stock is given by the following binomial tree. 160 140 120 100 80 60 40 Figure 1: stock price

Answer rating: 100% (QA)

1 Firstly we have to calculate probability of price increase Probability of price increase S 0 e rt ... View the full answer