Problem

15. The price of ABC stock is currently at S = $100. After one period, the price will move...

15. The price of ABC stock is currently at S = $100. After one period, the price will move to one of the following two values: {uS,dS}, where {u = 1.2, d = 0.9}. A $1.00 investment in the risk-free asset will return $1.10 at the end of the period.

(a) Find the risk-neutral probabilities governing the movement of the stock price.

(b) For a strike-100 call, find the delta of the call.

(c) For a strike-100 put, find the delta of the put.

(d) Compute the difference between the call delta and the put delta and explain the answer you get.

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Solutions For Problems in Chapter 11