Problem Set 3 1) Binomial tree A stock price is currently $30. During each two-month period for the next four months it is expected to increase by 8%…
Problem Set 3 1) Binomial tree A stock price is currently $30. During each two-month period for the next four months it is expected to increase by 8% or decrease by 10%. No dividend payment is expected during these two periods. The risk-free interest rate is 5% per annum. Use a two-step tree to calculate the value of a European-style derivative that pays off [max(30-ST,0)]^2 where […]
