You are required to price a call option (strike price K = 8) with a two-period...
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You are required to price a call option (strike price K = 8) with a two-period binomial model. Assume the interest rate is r = 0. The share price is S(t) = $5 at t = 0. • At t = 1: S(t) is either $7 or $3 (with physical probabilities 0.6 and 0.4, respectively). • At t = 2: S(t) is either $9 or $5 (with physical probabilities 0.3 and 0.7, respectively) if S(t) = 7 at t = 1. • At t = 2: S(t) is either $5 or $1 (with physical probabilities 0.4 and 0.6, respectively) if S(t) = 3 att = 1. You are required to price a call option (strike price K = 8) with a two-period binomial model. Assume the interest rate is r = 0. The share price is S(t) = $5 at t = 0. • At t = 1: S(t) is either $7 or $3 (with physical probabilities 0.6 and 0.4, respectively). • At t = 2: S(t) is either $9 or $5 (with physical probabilities 0.3 and 0.7, respectively) if S(t) = 7 at t = 1. • At t = 2: S(t) is either $5 or $1 (with physical probabilities 0.4 and 0.6, respectively) if S(t) = 3 att = 1.
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