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. Use the tree to compute the delta of a 1-year $100-strike European put option on the stock.

Answer #1

Two Step Binomial
Tree |
||

r= | risk free rate | 0% |

t= | Length of time of a step=delta t | 0.5 |

S0= | Current Stock Price | 100 |

K= | strike price | 100 |

Sou= | Stock price after one up step | 115 |

Sod= | Stock price after one down step | 85 |

fu= | Payoff from option after one step up | 0 |

fd= | Payoff from option after one step down | 15 |

Now delta = fu-fd/(Sou-Sod) =(0-15)/(115-85) | ||

=-15/30=-0.5 | ||

So the delta of the put option is (-0.5) |

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 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. 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.

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

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.
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on AMZN. How much will your option position increase in value if...

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