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3. A stock price is currently $100. It is known that after 3 months it will either go up by 10% or down by 10%. The stoc
Posted: Sun Apr 17, 2022 6:28 pm
by answerhappygod
- 3 A Stock Price Is Currently 100 It Is Known That After 3 Months It Will Either Go Up By 10 Or Down By 10 The Stoc 1 (25.44 KiB) Viewed 31 times
3. A stock price is currently $100. It is known that after 3 months it will either go up by 10% or down by 10%. The stock pays no dividends. The risk-free interest rate is 8% per annum with continuous compounding. (a) Find the premium of a 3-month European call with a strike price of $105 by using a one-period binomial tree. (b) Suppose you observe that in the market, a 3-month call with a strike price of $105 is worth $3.5. What arbitrage would you undertake?