Problem

14. The initial stock price is $100. The stock moves up each period by a factor of 1.3 and...

14. The initial stock price is $100. The stock moves up each period by a factor of 1.3 and down by a factor of 0.8. If the simple interest rate per period is 1%, what is the risk-neutral probability of an up move in the stock price?

Draw the stock price tree for three periods and price an Europan call option for three periods at strike $105.

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Solutions For Problems in Chapter 12