Hongpengmin Zhang 10B

Hongpengmin Zhang 10B - This assignment is to be...

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This assignment is to be electronically submitted to [email protected] between 8 AM and 11:59 PM on Wednesday 4/6/2016. The exercise will be counted as 5 points toward your overall score for the class (if correct). This exercise may be done in groups of up to three people. If you do this assignment with other students, please submit only one answer will all names attached. Given the following information about a call and a put find the binomial option pricing model value of the call and the put. Today’s stock price for XYZ corporation is \$45.00.
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Unformatted text preview: The strike price is \$50 for both the call and the put. Time to expiration for year. The stock price will rise by 40% or fall by 40% over each of the next year. The borrowing and lending rate of interest is 12%. A. What is the risk neutral value of the call at time zero? (show your work) 45=[63q+27(1-q)]/1.12 => q=0.65 1-q=0.35 C=13*0.65/1.12=7.54 B. What is the risk neutral value of the put at time zero? (show your work) C=23*0.35/1.12=7.19...
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