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A stock price is currently $50. Over each of the next two 3-month periods it is...

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Finance

A stock price is currently $50. Over each of the next two3-month periods it is expected to go up by 6% or down by 5%. Therisk-free rate is 5% per annum with continuous compounding. What isthe value of a six-month European call option with a strike priceof $51? 4

Calculate the price of the put option in problem 3 if it wasAmerican.

Answer & Explanation Solved by verified expert
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A tree describing the behavior of the stock price is shown inbelow figure The riskneutral probability of an upward movep is given byThere is a payoff from the option of Cuu    See Answer
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A stock price is currently $50. Over each of the next two3-month periods it is expected to go up by 6% or down by 5%. Therisk-free rate is 5% per annum with continuous compounding. What isthe value of a six-month European call option with a strike priceof $51? 4Calculate the price of the put option in problem 3 if it wasAmerican.

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