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Calculate the price of a call option expiring

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Reference no: EM133113702

Consider a two period binomial model in which a stock currently trades at a price of $65. The stock price can go up 20 percent or down 17 percent. The risk free rate is 5 percent.

Calculate the price of a call option expiring in two periods with an exercise price of $60.

Based on your answer in Part A., calculate the number of units of the underlying stock at each point in the binomial tree that would be needed to construct a riskless hedge. Use 10,000 options to answer this question.

Reference no: EM133113702

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