Tute9

AFF3751 Tutorial 9 Binomial Option Pricing Q1) A rootage price is currently $50. It is cognise that at the windup of dickens months it will be every $53 or $48. The endangerment-free interest rate is 10 shareage p.a. with unceasing compounding. development the binomial tree, envision the nurture of a two-month European discoer pick with a strike price of $49, with (a) the no-arbitrage approach, (b) with guess sable valuation approach. Q2) A stock is currently $40. It is cognise that at the end of three months it will be both $45 or $35. The risk-free interest rate with every fag end compounding is 8 percent p.a. Using the binomial tree, com identifye the value of a three-month European border 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 risk-free interest rate is 5 percent per annum with perpetual compounding. What is the value of a six-month European call option with a strike price of $51?

Q4) For the situation considered in Problem 3 above, what is the value of a six-month European launch option with a strike price of $51? perplex forward that the European call and European put prices return 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 cont inuous compounding. job ST is the stock pri! ce at the end of two months. worth the derivative that pays off ST2 at this time, using both no-arbitrage and risk neutral approaches. If you want to get a full essay, show it on our website: BestEssayCheap.com

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