What is the initial price of the option using backwards induction? Stock Price = 216 N =

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What is the initial price of the option using backwards induction?

Stock Price = 216

N = T = 3 periods

Risk-Free Rate = 0

Uptick Value = 2

Downtick Value = 0.5

Risk-Neutral Probability = 0.3333

Related Book For answer-question

Microeconomics

ISBN: 978-1259813337

2nd edition

Authors: Dean S. Karlan, Jonathan J. Morduch

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Posted Date: Apr 28, 2023 08:45 AM

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What is the initial price of the option using backwards induction? Stock Price = 216 N =

Question:

216 432 108 864 216 216 54 1728 -432 432 - 108 -432 108 108 27 216 432 108 864 216 216 54 1728 -432 432 - 108 -432 108 108 27

Expert Answer:

Backward induction is a technique used to price options by starting at the expiration date and worki... View the full answer

Microeconomics

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