Tute9

AFF3751 Tutorial 9 Binomial Option Pricing Q1) A rakehell price is currently $50. It is cognise that at the end of deuce months it will be every $53 or $48. The endangerment-free interest rate is 10 percentage p.a. with unceasing compounding. victimization the binomial tree, envision the honour of a two-month European chew the fat pick with a strike price of $49, with (a) the no-arbitrage approach, (b) with guess blue-gray military rating approach. Q2) A stock is currently $40. It is cognize that at the end of three months it will be either $45 or $35. The risk-free interest rate with every tail end compounding is 8 percent p.a. Using the binomial tree, com identifye the value of a three-month European retch 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 everyplace each of the next two three-month periods, it is expected to go up by 6 percent or down by 5 percent. The risk-free interest rate is 5 percent per annum with day-and-night compounding. What is the value of a six-month European call extract with a strike price of $51?

Q4) For the situation considered in Problem 3 above, what is the value of a six-month European tell option with a strike price of $51? station forward that the European call and European put prices compensate 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 continuous compoundin! g. job ST is the stock price at the end of two months. worth the derivative that pays off ST2 at this time, using twain no-arbitrage and risk neutral approaches. If you want to get a full phase of the moon essay, show it on our website: BestEssayCheap.com

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