Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. a european put option has a strike price of $56 an

A European put option has a strike price of $56 and expires in six months....

90.2K

Verified Solution

Question

Finance

A European put option has a strike price of $56 and expires in six months. It is written over a stock that is currently $59, but could either increase by 5% or decrease by 5% over each of the next two three-month periods. The risk-free interest rate is 4% per annum with continuous compounding.
i) On the binomial tree diagram below identify the stock prices in the positions indicated by the letters A to F, and the value of the put option at positions D, E and F.
ii) Calculate the price of this option today.
iii) Explain why the corresponding American put has the same value.
[3+3+2=8 marks]
2 step binomial tree

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Finance
1.2K views

Glencor is evaluating four average-risk projects with the following costs and rates of return: Project Cost...

Psychology
1.2K views

For the short essay assignment you will compare Pablo Neruda’s “Ode to a Large Tuna in...

Biology
1.2K views

Arrange the images representing the organization of eukaryotic genetic material from smallest to largest Jamamala...

Physics
1.2K views

A particle rests on the top of a hemisphere of radius R Find the smallest...

Physics
1.2K views

The flow speeds of air on the lower and upper surfaces of the wing of...

Calculus
1.2K views

Find the least squares line and use it to estimate y for the indicated value...

Calculus
1.2K views

Identify the even vertices and identify the odd vertices LIF Use a comma to separate...

Calculus
1.2K views

y x 45 dy dx Type an exact answer using radicals as needed N

Algebra
1.2K views

If you bought 28 shares of stock at 30 sh and sold them at 25...

Accounting
1.2K views

Aditithal infereafion Meiciued

Accounting
1.2K views

Market Focus is a marketing research firm that organizes focus groups for consumer-product companies. Each...

Accounting
1.2K views

nment/take AssignmentMain.do?inprogress=true eBook Show Me How Calculator Print Item Issuing Bonds at a Premium On...