Stock Z is trading at $50 today. In one year, the value will go either...
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Stock Z is trading at $50 today. In one year, the value will go either up to $62.50 or down to $40. A call option on Z with exactly one year to expiration has a strike price of $55. Inflation is high, so the interest rate is 10% per year.
- Find the value of the call option using binomial approach.
- What is the hedge ratio of the call option?
- From the put-call parity, what should be the price of the identical put option?
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