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PROBLEM 1: Use the "up-down" binomial pricing method to derive call option values for the following conditions: A. S = 30, K = 34, r = 3%, t = .25, u = 1.5, d = .5 and there is only one step or "jump" before expiration. Assume this is a European option. Show your work.

PROBLEM 1: Use the "up-down" binomial pricing method to derive call option values for the following conditions: A. S = 30, K = 34, r = 3%, t = .25, u = 1.5, d = .5 and there is only one step or "jump" before expiration. Assume this is a European option. Show your work.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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How did you get Fu = 11 & Fd = 0?? **Can you explain** **Show Calculation**

PROBLEM 1: Use the "up-down" binomial pricing method to derive call option values for the following conditions: A. S = 30, K = 34, r = 3%, t = .25, u expiration. Assume this is a European option. Show your work. S= K= r= t= u= d = e^rt = fu = fd = T= (1-π) = f= 30 34 3% 0.25 1.5 0.5 1.007528 11 0 1.5, d 0.507528 0.492472 5.541096 S= 30 f= ? - .5 and there is only one step or "jump" before S= 45 S= 15 fu= 11 fd = 0
Transcribed Image Text:PROBLEM 1: Use the "up-down" binomial pricing method to derive call option values for the following conditions: A. S = 30, K = 34, r = 3%, t = .25, u expiration. Assume this is a European option. Show your work. S= K= r= t= u= d = e^rt = fu = fd = T= (1-π) = f= 30 34 3% 0.25 1.5 0.5 1.007528 11 0 1.5, d 0.507528 0.492472 5.541096 S= 30 f= ? - .5 and there is only one step or "jump" before S= 45 S= 15 fu= 11 fd = 0
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