Suppose you are attempting to value a 1-year expiration option on a stock with volatility (i.e.,...
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Suppose you are attempting to value a 1-year expiration option on a stock with volatility (i.e., annualized standard deviation) of = 0.43. What would be the appropriate values for u and d if your binomial model is set up using: a. 1 period of 1 year. b. 4 subperiods, each 3 months. c. 12 subperiods, each 1 month. Note: Do not round intermediate calculations. Round your answers to 4 decimal places. a. Subperiods 1 At = T/n u = exp( At) d = exp(-\ At) 1/1 = 1 b. 4 1/4 = 0.25 C. 12 1/12 = 0.0833 Suppose you are attempting to value a 1-year expiration option on a stock with volatility (i.e., annualized standard deviation) of = 0.43. What would be the appropriate values for u and d if your binomial model is set up using: a. 1 period of 1 year. b. 4 subperiods, each 3 months. c. 12 subperiods, each 1 month. Note: Do not round intermediate calculations. Round your answers to 4 decimal places. a. Subperiods 1 At = T/n u = exp( At) d = exp(-\ At) 1/1 = 1 b. 4 1/4 = 0.25 C. 12 1/12 = 0.0833
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