Suppose the current price of the underlying stock of a call option is currently $100. It has a 10% upside and a 20% downside each year. Given that the annual interest rate is 0 , what is the price of a European at-the-money 2 year call option using 2-step binomial tree? After calculating that, what is the compound option (a call on a call) price to buy the previously mentioned call option at time T = 1 for a strike price K = 4 ?

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To calculate the price of a European atthemoney call option using a 2step binomial tree we can follo... View the full answer