Tute9

AFF3751 Tutorial 9 binomial Option Pricing Q1) A blood monetary judge is before long $50. It is cognise that at the closedown of devil months it go away be every $53 or $48. The endangerment-free hobby rate is 10 portionage p.a. with unceasing compounding. victimisation the binomial tree, envision the abide by of a twain-month European bring forward pick with a select determine of $49, with (a) the no-arbitrage approach, (b) with guess yellowish-grey valuation approach. Q2) A parentage is currently $40. It is cognize that at the end of three months it will be all $45 or $35. The riskless rice beer rate with every quartern compounding is 8 pct p.a. Using the binomial tree, com identifye the think of of a three-month European practice pick on the shopworn with a spank monetary value of $40, with (a) the no-arbitrage approach, (b) with the risk neutral valuation approach. Q3) A stock footing is currently $50. all over each of the next dickens three-month periods, it is expected to go up by 6 portion or down by 5 percent. The risk-free interest rate is 5 percent per annum with invariable compounding. What is the value of a six-month European border selection with a strike price of $51?

Q4) For the situation considered in Problem 3 above, what is the value of a six-month European de sende option with a strike price of $51? enthrone option forward that the European call and European put prices receive 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 wrap up ST2 at this time, using twain no-arbitrage and risk neutral approaches. If you command to get a wide-cut essay, show it on our website: Ordercustompaper.com

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