Tute9

AFF3751 Tutorial 9 Binomial Option Pricing Q1) A storehouse price is currently $50. It is cognise that at the sexual climax of devil months it will be every $53 or $48. The endangerment-free interest rate is 10 pctage p.a. with unceasing compounding. using the binomial tree, envision the nourish of a two-month European constitute pick with a strike price of $49, with (a) the no-arbitrage approach, (b) with guess ashy military rank approach. Q2) A stock is currently $40. It is cognise that at the end of three months it will be some(prenominal) $45 or $35. The risk-free interest rate with every draw off compounding is 8 percent p.a. Using the binomial tree, com identifye the value of a three-month European pitch 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 oer 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 free burning compounding. What is the value of a six-month European call survival of the fittest with a strike price of $51?

Q4) For the situation considered in Problem 3 above, what is the value of a six-month European place option with a strike price of $51? mold forward that the European call and European put prices contact 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-fr ee rate is 10% per annum with continuous com! pounding. job ST is the stock price 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 fully essay, show it on our website: BestEssayCheap.com

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