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A stock index is currently at 120. After three months, the index level will be...

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Finance

A stock index is currently at 120. After three months, the index level will be either 111 or 140. There is no dividend yield on the index and the risk-free rate per annum is 5% (with continuous compounding). Determine the value of a three-month straddle that consists of European options on the index with exercise price 122.

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