1 a whoey option pays the difference between the final

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1) A Whoey option pays the difference between the final price and the maximum price of a stock over the period of the option. For example, if the price of a stock is 200, 220, and 234 in the previous periods (here periods 0, 1, and 2), the maximum price is 234, the final price is 234, and the option would pay 234-234=0. If the price path is 200, 220, 200, the maximum price is 220, the final price is 200, and the option would pay 20.

So given all this, you have a Whoey option that expires in 2 periods where the stock price in period 0 is 600. The stock either moves up with u=1.25, or down with d=1/1.25. The interest rate is 1/19. What is the value of your option today in period 0?

Reference no: EM13378775

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