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Current stock price is $150; volatility is 20% per annum. An at-the-money European put option on...

Current stock price is $150; volatility is 20% per annum. An at-the-money European put option on the stock expires in 3 months. Risk free rate is 5% per annum, continuously compounded. There is no dividend expected over the next 3 months. Use a 3-step CRR model to price this option.

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Answer #1

Expected value in 3 months = (0.472*0.472*0.527*8.75) + (0.472*0.527*0.472*8.75)+(0.527*0.472*0.472*8.75) + ( 0.472*0.472*0.472*24.22)

Expected value in 3 months = $5.628

PV of the option =

PV of option = $5.558

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