Posted: April 3rd, 2019

How do I use a binomial tree to determine the risk-free rate rate associated with a put option?

How do I exploit a binomial tree to seek out out the risk-free payment payment associated to a put selection? “Suppose at current’s stock worth of is $100. With probability 60% the value will rise to $130 in a single yr and with probability 40% it will fall to $80 in a single yr. A European put selection with a strike worth of $90 and a time to expiration of 1 yr sells at $4. What is the one-year hazard free payment implied by no-arbitrage (hint draw a binomial tree as we did in school)? What might be the no-arbitrage hazard free payment if with a probability of 50% the value will enhance and with a probability of 50% it decreases, conserving all completely different values mounted? Make clear”

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