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  3. a share of stock is currently worth $90 and has a

A share of stock is currently worth $90 and has a volatility of 20%. The domestic...

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Finance

A share of stock is currently worth $90 and has a volatility of20%. The domestic risk-free interest rate is 5% and the stock doesnot pay any dividend. Use a two-step binomial tree to derive a) thevalue of a European four-month call option written on a 100 sharesof stock with a strike price of $91 per share, and b) the positionin shares of stock (long or short) which will hedge a shortposition in the European call option today.

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All financials are in S0 90 K 91 20 020 t 4 months 2 steps 2months 2 12 year 16 year r risk free rate 5 005Please see the tree diagram below Stock price call value andprobability are all shown in    See Answer
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A share of stock is currently worth $90 and has a volatility of20%. The domestic risk-free interest rate is 5% and the stock doesnot pay any dividend. Use a two-step binomial tree to derive a) thevalue of a European four-month call option written on a 100 sharesof stock with a strike price of $91 per share, and b) the positionin shares of stock (long or short) which will hedge a shortposition in the European call option today.

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