22. The initial stock price is $50. The up move in the stock price is modulated by factor u = 1.2, and the down move is d = 0.9. One dollar invested at the beginning of a period returns $1.05 at the end of the period.
Draw a two-period stock price tree for this stock. Then price a two-period European call with a strike price of 50.
Find the replicating portfolio at the initial node on the tree. Show that this replicating portfolio does mimic the price of the call at both subsequent nodes at time 1 on the option tree.
We need at least 10 more requests to produce the solution.
0 / 10 have requested this problem solution
The more requests, the faster the answer.