Tute9

AFF3751 Tutorial 9 Binomial Option Pricing Q1) A memory price is currently $50. It is cognise that at the ending of twain months it will be every $53 or $48. The endangerment-free interest rate is 10 partage p.a. with unceasing compounding. using the binomial tree, envision the measure of a two-month European call back pick with a strike price of $49, with (a) the no-arbitrage approach, (b) with guess slate-grey rating approach. Q2) A stock is currently $40. It is know that at the end of three months it will be either $45 or $35. The risk-free interest rate with every canton compounding is 8 percent p.a. Using the binomial tree, com identifye the value of a three-month European prepare pick on the stock with a strike price of $40, with (a) the no-arbitrage approach, (b) with the risk neutral valuation approach. Q3) A stock price is currently $50. all over each of the next two three-month periods, it is expected to go up by 6 percent or down by 5 percent. The r isk-free interest rate is 5 percent per annum with unbroken compounding. What is the value of a six-month European call excerpt with a strike price of $51?

Q4) For the situation considered in Problem 3 above, what is the value of a six-month European flummox option with a strike price of $51? put in forward that the European call and European put prices recompense put-call parity. Q5) What would be the price of the put in Q5 if it were an American put option? Q6) A stock price is currently $25. It is known that at the end of two months it will be either $23 or 27. The risk-free rate is 10% per annum with continu ous compounding. job ST is the stock price ! at the end of two months. worth the derivative that pays off ST2 at this time, using both(prenominal) no-arbitrage and risk neutral approaches. If you want to get a across-the-board essay, show it on our website: BestEssayCheap.com

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