A stock index is currently 1,500. Its volatility is 18%. The risk-free rate is 4% per...

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A stock index is currently 1,500. Its volatility is 18%. Therisk-free rate is 4% per annum for all maturities and the dividendyield on the index is 2.5% (both continuously compounded).Calculate values for u, d, and p when a 6-month time step is used.What is value of a 12-month European put option with a strike priceof 1,480 given by a two-step binomial tree?

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GIVEN	Strike price	X	1480
	Current stock price	S	1500
	Risk free interest rate per annum	Rf	4%
	Dividend yield	dy	2.50%
	Length of time step (in years)	n1	0.5	square root =	0.707106781
	Volatility	?	18%
COMPUTED	Up factor	u	e to the power (?*square root of n)	e to the power (G8*I7)	1.136
	down factor	d	1/u	1/I9	0.88
	probability (up)	p	e to the power (Rf-dy)*nn-d)/(u-d)		1.0075	0.498
	probability (down)	1-p				0.502


						1934.8379	(put premium = IF (G3-J16>0,(G3-J16),0)	0
			1,703.60	Put premium = 0	0
Stock price	1500					1500	put premium = 0	0
put premium=	242.18		1,320.73	Put premium = 277.13	159.27
						1162.8881	put premium = 1480-1162	317.11188

put price	244.01		279.21
	1.007528195		1.00753
ANSWER	242.18		277.13


put price formula	(01.136+277.130.88)/dividing factor		(01.136+00.88)/dividing factor
dividing factor	e to the power (Rf-dy)*n		e to the power (Rf-dy)*n

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A stock index is currently 1,500. Its volatility is 18%. Therisk-free rate is 4% per annum for all maturities and the dividendyield on the index is 2.5% (both continuously compounded).Calculate values for u, d, and p when a 6-month time step is used.What is value of a 12-month European put option with a strike priceof 1,480 given by a two-step binomial tree?

A stock index is currently 1,500. Its volatility is 18%. The risk-free rate is 4% per...

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