Question: using the binominal tree model, price a european put option with strike price $ 5 9 , if the underlying security currently trades at $

using the binominal tree model, price a european put option with strike price $59, if the underlying security currently trades at $60, and in any given month, it can go up by 4% or down by 4%. the risk free interest rate is r =0.02, and the expiration date is 3 months.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Q:

3. A non-dividend-paying stock is trading at So 100, and the interest rate is 6 ln(1.01). (a) Use a two-period binomial model with up and down factors u = 1.16, d = 0.91 and up probability p = 0.7 to...

Q:

A non-dividend paying stock, currently priced at 300, is expected to go up by 30% or go down by 20% over a period. The risk free rate for one period is 2%. a) Build a 2-period tree of stock prices....

Q:

1. Consider a two-period binomial model for the stock price with where t > 0 denotes the time duration in each period (in years), and r > 0 is the continuously compounded annual interest rate. (a)...

Q:

Currently, the stock Twentycent is 6 3 0 . The annualized volatility is 1 5 % . The continuously compounded risk - free rate is 4 % p . a . . The continuous dividend yield is 2 % . Use a 2 - step...

Q:

Currently, the stock Twentycent is 630. The annualized volatility is 15%. The continuously compounded risk-free rate is 4% p.a.. The continuous dividend yield is 2%. Use a 2-step binomial tree to...

Q:

Consider a two-period binomial market model for an underlying asset with price process S, at each time t. Branching from t to t + 1 results in St+1 = ust in case of an upward price move, and St+1=dSt...

Q:

Draw a 2-period binomial tree for a stock with an $800 price and 50% standard deviation. a) The annual risk-free rate is 5%. Calculate the periodic risk-free rate used for an option expiring in 201...

Q:

Draw a 2-period binomial tree for a stock with $800 price and 50% standard deviation. a) The annual risk-free rate is 5%. Calculate the periodic risk-free rate used for an option expiring in 201 days...

Q:

Draw a 2-period binomial tree for a stock with $800 price and 50% standard deviation. a) The annual risk-free rate is 5%. Calculate the periodic risk-free rate used for an option expiring in 201 days...

Q:

The amounts of a chemical compound y, which dissolved in 100 grams of water at various temperatures, .r, were recorded as follows:(a) Find the equation of the regression line.(b) Graph the line on a...

Q:

A study quoted in Chapter 13 reports that there was much more pass-through by German carmakers than their Japanese counterparts in the U.S. car market when both currencies depreciated against the...

Q:

Short notes a. DSS b. Assembly line c. Job shop d. Lean production e. Production systems

Q:

Considering all learned content this week let's discuss the following ( be sure to check formal requirements for discussion posts in the syllabus before submitting your work ) : Healing is a holistic...

Q:

Your job or career: Where are you working? What are you doing? What is your compensation?

Q:

1. Professor Zuboff says Edward was haunted by the sense of not knowing what he didnt know or how to learn it. Is it possible that many employees in todays labor force suffer from that same fear?...

Q:

2. Some people can benefit from multiple mentors. What other types of mentors, in addition to Professor Zubofff and her husband, might Edward find helpful?