The following information refers to parts 1-5 below, select the right answer from the drop-down menu...

  

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The following information refers to parts 1-5 below, select the right answer from the drop-down menu and answer the compute questions. Consider a three-period (0, 1, and 2) binomial time-state model in which there are two securities, a bond and a stock. The payments made by the stock are shown in the binomial tree below: 1.00 Stock 1.18 b 0.87 2) Compute the forward atomic price of state g: go 88 1.3924 gb 1.0266 1.0266 bg The Patom vector represents the atomic (time-state) prices of elementary payment for states g, b, gg, gb, bg and bb, respectively. Patom= (0.63 0.30 0.39 0.19 0.19 0.10) Round your answers to 3 decimal digits if necessary. 1) Compute the discount factor of period 2: 0.7569 bb Please answer all parts of the question. 3) Compute the arbitrage-free price of a European put option on the stock expiring at period 2 with strike price 1.0069: 4) Compute the arbitrage-free price of an American put option on the st ✓ 5) In which period-state do you exercise the American put option above 0 1g 1b 2gg 2gb 2bg 2bb ng at period 2 with strike price 1.0069: ] Next page The following information refers to parts 1-5 below, select the right answer from the drop-down menu and answer the compute questions. Consider a three-period (0, 1, and 2) binomial time-state model in which there are two securities, a bond and a stock. The payments made by the stock are shown in the binomial tree below: 1.00 Stock 1.18 b 0.87 2) Compute the forward atomic price of state g: go 88 1.3924 gb 1.0266 1.0266 bg The Patom vector represents the atomic (time-state) prices of elementary payment for states g, b, gg, gb, bg and bb, respectively. Patom= (0.63 0.30 0.39 0.19 0.19 0.10) Round your answers to 3 decimal digits if necessary. 1) Compute the discount factor of period 2: 0.7569 bb Please answer all parts of the question. 3) Compute the arbitrage-free price of a European put option on the stock expiring at period 2 with strike price 1.0069: 4) Compute the arbitrage-free price of an American put option on the st ✓ 5) In which period-state do you exercise the American put option above 0 1g 1b 2gg 2gb 2bg 2bb ng at period 2 with strike price 1.0069: ] Next page

Answer rating: 100% (QA)

We are given two securities a stock and a bond in a twoperiod model The payments at each period is also given to us The initial value of both the stock and the bond are 100 In period 1 if the times ar... View the full answer