Question

Consider a one-step binomial tree on stock with a current price of $100 that can go either up to $115 or down to $85 in 1 year. The stock does not pay dividend and interest rates are zero. Compute the payoff of a 1-year $100-strike European put option on the stock if the stock price ends up at the $115 node of the tree in 1 year.

Answer #1

A put option is a right to sell the underlying at an agreed price set today.

Clearly, If the stock price goes up, a stockholder can sell the stock at a higher price in the market, therefore, the holder will exercise the option only when the market price of the stock goes below the exercise price.

So, in this case, Exercise Price, E = 100 ; Stock price at year-end S = 115

So the investor won't sell the stock at 100 therefore the option lapses.

Hence, Payoff = 0

1. Consider a one-step binomial tree on stock with a current
price of $100 that can go either up to $115 or down to $85 in 1
year. The stock does not pay dividend and interest rates are zero.
Use the tree to compute the value of a 1-year $100-strike European
put option on the stock.
2. Suppose you are long 100 contracts on a 1-year 25-put option
on AMZN. How much will your option position increase in value if...

Consider a one-step binomial tree on stock with a current price
of $100 that can go either up to $115 or down to $85 in 1 year. The
stock does not pay dividend and interest rates are zero. Use the
tree to compute the value of a 1-year $100-strike European put
option on the stock.

Consider a one-step binomial tree on stock with a current price
of $100 that can go either up to $115 or down to $85 in 1 year. The
stock does not pay dividend and interest rates are zero. Use the
tree to compute the value of a 1-year $100-strike European put
option on the stock.

Consider a one-step binomial tree on stock with a current price
of $100 that can go either up to $115 or down to $85 in 1 year. The
stock does not pay dividend and interest rates are zero. Use the
tree to compute the delta of a 1-year $100-strike European put
option on the stock.

Consider a one-step binomial tree on stock with a current price
of $100 that can go either up to $115 or down to $85 in 1 year. The
stock does not pay dividend and interest rates are zero. Use the
tree to compute the value of a 1-year $100-strike European put
option on the stock.

consider a one step binomial tree with a current price of $100 that
can go either up to $115 or down to $85 in 1 year. the stock does
not pay dividend and the interest rates are zero. use the tree to
compute the value of a 1 year $100 strike european put option on
the stock

Consider a one-step binomial tree on stock with a current price
of $200 that can go either up to $230 or down to $170 in 2 years.
The stock does not pay dividend. Continuously compounding interest
rate is 5%. Compute the payoff of a 2-year $210-strike European
call option on the stock if the stock price ends up at the $230
node of the tree in 2 years.

Consider a one-step binomial tree on stock with a current price
of $200 that can go either up to $230 or down to $170 in 2 years.
The stock does not pay dividend. Continuously compounding interest
rate is 5%. Use the tree to compute the delta of a 2-year
$210-strike European call option on the stock.

Consider a one-step binomial tree on stock with a current price
of $200 that can go either up to $230 or down to $170 in 2 years.
The stock does not pay dividend. Continuously compounding interest
rate is 5%. Use the tree to compute the value of a 2-year
$210-strike European call option on the stock.

Consider a one-step binomial tree on stock with a current price
of $200 that can go either up to $230 or down to $170 in 2 years.
The stock does not pay dividend. Continuously compounding interest
rate is 5%. Use the tree to compute the delta of a 2-year
$210-strike European call option on the stock.

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 9 minutes ago

asked 14 minutes ago

asked 40 minutes ago

asked 50 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 3 hours ago

asked 3 hours ago

asked 3 hours ago