Binomial tree model for a stock

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Reference no: EM13971535

Suppose a binomial tree model for a stock where price can go up (u = 1.2) or down (d = 0.7). The riskless interest rate is r = 10%. Consider a European call option with a strike K = 105 and that matures at the end of one period. Take several stock spot prices: S=$80, S=$90, S=$100, S=$110, S=$120. For each spot price compute the option premium (c) and the replication portfolio (DeltaA?„, B). Plot your results in 3 function graphs: one with c and S, one with DeltaA?„ and S, and one with B and S. Interpret your results.

Reference no: EM13971535

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