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Not yet answered Marked out of 10.00 Flag question A stock price is currently $20. Over each of the next two three-month periods it is expected to go up by 10% or down by 10%. The risk-free interest rate is 2% per annum with continuous compounding. Use the binomial tree pricing approach to estimate the value of a six-month American put option with a strike price of $21. The figure below shows the tree to evaluate the option value. At each note, the upper number (S1-S6) is the stock price, the lower number (P1-P6) is the American put price. The value of S1, S2 and S3 are $20, $22 and $18 respectively. S4 P4 S2 P2 $1 55 P1 P5 $3 P3 S6 P6 Write your answer to TWO (2) decimal places, e.g. 1.00. 221 The risk neutral probability of an up move (p) is [1 mark] 22:2 The value of S4 is dollars. [1 mark] 22.3 The value of $5 is dollars [1 mark] 22.4 The value of S6 is dollars. [1 mark] 22.5 The value of P4 is dollars: [1 mark] 22.6 The value of P5 is dollars. [1 mark] 22.7 The value of P6 is dollars. [1 mark] 22.8 The value of P2 is dollars. [1 mark] 22.9 The value of P3 is dollars. [1 mark] 22.10 The value of P1 is dollars. [1 mark] [Total: 10 marks]

          Not yet answered Marked out of 10.00
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A stock price is currently $20. Over each of the next two three-month periods it is expected to go up by 10% or
down by 10%. The risk-free interest rate is 2% per annum with continuous compounding. Use the binomial tree
pricing approach to estimate the value of a six-month American put option with a strike price of $21. The figure
below shows the tree to evaluate the option value. At each note, the upper number (S1-S6) is the stock price, the
lower number (P1-P6) is the American put price. The value of S1, S2 and S3 are $20, $22 and $18 respectively.
S4
P4
S2
P2
$1
55
P1
P5
$3
P3
S6
P6
Write your answer to TWO (2) decimal places, e.g. 1.00.
221
The risk neutral probability of an up move (p) is
[1 mark]
22:2
The value of S4 is
dollars. [1 mark]
22.3
The value of $5 is
dollars [1 mark]
22.4
The value of S6 is
dollars. [1 mark]
22.5
The value of P4 is
dollars: [1 mark]
22.6
The value of P5 is
dollars. [1 mark]
22.7
The value of P6 is
dollars. [1 mark]
22.8
The value of P2 is
dollars. [1 mark]
22.9
The value of P3 is
dollars. [1 mark]
22.10 The value of P1 is
dollars. [1 mark]
[Total: 10 marks]

Not yet answered Marked out of 10.00
Flag question
A stock price is currently 20. Over each of the next two three-month periods it is expected to go up by 10% or
down by 10%. The risk-free interest rate is 2% per annum with continuous compounding. Use the binomial tree
pricing approach to estimate the value of a six-month American put option with a strike price of21. The figure
below shows the tree to evaluate the option value. At each note, the upper number (S1-S6) is the stock price, the
lower number (P1-P6) is the American put price. The value of S1, S2 and S3 are 20,22 and 18 respectively.
S4
P4
S2
P21
55
P1
P5
3
P3
S6
P6
Write your answer to TWO (2) decimal places, e.g. 1.00.
221
The risk neutral probability of an up move (p) is
[1 mark]
22:2
The value of S4 is
dollars. [1 mark]
22.3
The value of5 is
dollars [1 mark]
22.4
The value of S6 is
dollars. [1 mark]
22.5
The value of P4 is
dollars: [1 mark]
22.6
The value of P5 is
dollars. [1 mark]
22.7
The value of P6 is
dollars. [1 mark]
22.8
The value of P2 is
dollars. [1 mark]
22.9
The value of P3 is
dollars. [1 mark]
22.10 The value of P1 is
dollars. [1 mark]
[Total: 10 marks]

Added by Jimmy P.

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