2. For a binomial tree with equity returns continuously compounded with 0.2, and interest rates quarterly compounded at...

Question

Question

2. For a binomial tree with equity returns continuously compounded with 0.2, and interest rates quarterly compounded at annua

Answer 1

Similar Homework Help Questions

Suppose S = $100, r = 8% per annum (continuously compounded), t = 1 year, σ...

Suppose S = $100, r = 8% per annum (continuously compounded), t = 1 year, σ = 30% per annum, and δ = 5% per annum. Construct an eight-period binomial tree for the underlying stock using each of the following models Forward binomial tree Cox-Ross-Rubinstein binomial tree Lognormal tree Using the binomial trees you constructed, please compute the prices an American put struck at K=$95 and has 1 year to expiration. Please highlight early exercise locations on your trees.
The volatility of a stock is 0.3 per annum. In a Cox-Ross-Rubinstein binomial tree in which...

The volatility of a stock is 0.3 per annum. In a Cox-Ross-Rubinstein binomial tree in which one step represents a time interval of 3 months, what are the proportional up-movement and down-movement factors, u and d, respectively? a. u=1.16, d=0.86 b. u=1.30, d=0.70 c. u=1.24, d=0.81 d. u=1.35, d=0.74
15: Interest rates are 10% per annum continuously compounded. The price of the stock is currently...

15: Interest rates are 10% per annum continuously compounded. The price of the stock is currently $100 per share. In one year the price will be either $125 per share or $75 per share. Using a one period Binomial Tree Model as outlined in Section 75, find the value, now, of the call option with exercise price of 100. What is the hedge ratio? Now calculate the answers for exercise prices of 90 and 110.

A 1-year American put option on a stock is modeled with a 2-period binomial tree. Given that

A 1-year American put option on a stock is modeled with a 2-period binomial tree. Given that the price of the stock is 100, the strike price is 105. σ = 0.4. The continuously compounded risk-free rate is 6%. The stock pays no dividends.Determine the risk-neutral probability and the put premium
3. Let K(1)., K(n) be independent identically distributed one step returns rates on a binomial tree...

3. Let K(1)., K(n) be independent identically distributed one step returns rates on a binomial tree model for a stock price, S(n). Here K(1) = u with probability p and K(1) with probability 1 p. For which values of n and what conditions on u and d can (n) S(0)
Please help I know answer is 73.374 but I don't know how to get it. willy...

Please help I know answer is 73.374 but I don't know how to get it. willy the one-period binomial option pricing model, what is the forward price of a one-year forward contract on the stock? Problem 14.6 Consider a share of nondividend-paying stock in a one-year binomial frame. work with annual price changes, with the current price of the stock being 110 OPTION PRICING IN BINOMIAL MODELS 55, and the price of the stock one year from now being either...

Consider a binomial tree model for a stock price, S(n). Let r be the risk free...

Consider a binomial tree model for a stock price, S(n). Let r be the risk free rate of interest and p∗ the probability for which E∗(K(1)) =r. Find the conditional expectation E∗(S(n)|S(1)) for any value of n.
PROBLEM 2. Consider a two-step Binomial model. In Figure 1 you are given an incomplete pricing...

PROBLEM 2. Consider a two-step Binomial model. In Figure 1 you are given an incomplete pricing tree, which corresponds to a European put option with strike price K = 65. (a) (5 Points) Compute the per period interest rate r and the risk-neutral probability p*. (b) (10 Points) Find the price of the put option at t = 0. Moreover, determine the complete binomial tree for the stock price. 2.6545 PE(O) 14.6 17.09 35.06 Figure 1: European put with K...
5. Consider a binomial tree model for a stock price, S(n) as above. Find a probability...

5. Consider a binomial tree model for a stock price, S(n) as above. Find a probability value p, in the case when the risk free assest has a continuous compounding rate of r. What are the bounds on e', that is, what is the smallest and largest value it can be in terms of u and d which prevent arbitrage? S(n) is a stock price where K1)u with probability p and K(1d with probability 1-p and K(1). K(n) are independent...

NEED HELP WITH ALL QUESTIONS PLEASE!!!!! 14. Consider a one period binomial model. The initial stock...

NEED HELP WITH ALL QUESTIONS PLEASE!!!!! 14. Consider a one period binomial model. The initial stock price is $30. Over the next 3 months, the stock price could either go up to $36 (u = 1.2) or go down to $24 (d = 0.8). The continuously compounded interest rate is 6% per annum. Use this information to answer the remaining questions in this assignment. Consider a call option whose strike price is $32. How many shares should be bought or...