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.
Solution.>
The value of the call option is $2.79
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The formula used are:
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