Binomial Model: Calculate put price
Please help with the following problem. Include calculations.
Suppose that the stock now sells at $80, and the price will go up by 5% or down by 5% at the end of first six month (t = ½). Then, the price will either go up by 10% or down by 10% at the end of year (t = 1). A call option on the stock has an exercise price of $75 and a time to expiration of one year. Also, assume 10% annual interest rate and no dividend payment for this year. Calculate the put price at t=0.
Use a two stage binominal model.© SolutionLibrary Inc. solutionlibary.com 9836dcf9d7 https://solutionlibrary.com/statistics/probability/binomial-model-calculate-put-price-7g5b
...t rate and no dividend payment for this year. Calculate the put price at t=0.
In the up state, the value of the put option will be 0 because it will never be exercised. Thus, you multiply 0.5 with 0, you get 0. Instead of doing that, I just ignored to take that into the calculations.
There is no ...