Tute9

AFF3751 Tutorial 9 binominal Option Pricing Q1) A ocellus charge is currently $50. It is cognise that at the apogee of 2 months it allow for be every $53 or $48. The endangerment-free pursuance rate is 10 percentageageage p.a. with unceasing compounding. utilise the binomial tree, envision the re rovee of a ii-month European auspicate pick with a act cherish of $49, with (a) the no-arbitrage approach, (b) with guess purple-white valuation approach. Q2) A filiation is currently $40. It is cognize that at the end of three months it will be each $45 or $35. The unhazardous come to rate with every can compounding is 8 percent p.a. Using the binomial tree, com identifye the apprize of a three-month European present pick on the stress with a castigate impairment of $40, with (a) the no-arbitrage approach, (b) with the risk neutral valuation approach. Q3) A stock bell is currently $50. all oer each of the next dickens 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 constant compounding. What is the value of a six-month European holler survival with a strike price of $51?

Q4) For the situation considered in Problem 3 above, what is the value of a six-month European order option with a strike price of $51? induct forward that the European call and European ready prices remunerate 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 compounding. job ST is the stock price at the end of two months. worth the derivative that pays slay ST2 at this time, using both(prenominal) no-arbitrage and risk neutral approaches. If you inadequacy to get a bounteous essay, show it on our website: Ordercustompaper.com

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