Use a two-step Binomial option pricing model to price both a Call and a Put option at

16

th

March 2022. Students within the group should choose

DIFFERENT OPTION

STRIKES

of the

SAME STOCK

. The purpose is to identify a mispriced option in the

market. Based on the fair value you calculated for your option, determine if your chosen

option is undervalued or overvalued in the market. The risk-free rate is assumed to be

1.33%. Assume no dividend. Your report must:

Show calculations for inputs required for the Binomial pricing model

Document and explain all calculations pertaining to your chosen options

(6 marks)

Illustrate the two period binomial lattice, complete with labels for the values of stock and

option at each node.