Question

A 3-month call option on a stock is modeled as a binomial tree. You are given:...

A 3-month call option on a stock is modeled as a binomial tree. You are given:

(1) The stock price is 50.

(2) The strike price is 55.

(3) r=0.08r=0.08.

(4) δ=0.05δ=0.05.

(5) σ=0.4σ=0.4.

Determine the premium of the call option.

Homework Answers

Answer #1

Solution.>

The value of the call option is $2.79

I have solved it in Excel. If you still have any doubt, kindly ask in the comment section.

The formula used are:

Note: Give it a thumbs up if it helps! Thanks in advance!

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