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Conditional average price of underlying stock

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Reference no: EM132660411

Q1. You believe stock price by year end will have the following multinomial distribution:

Price Probability

60 10%

80 20%

100 40%

120 20%

140 10%

Q1a. What should be the stock price TODAY?

Q1b. What is the prob that a 90 strike PUT will expire ITM?

Q1c. What is the conditional average price of underlying stock when 90 strike PUT expires ITM?

Q1d. What is the conditional average payment from the 90 strike PUT option when the PUT expires ITM?

Q1f. Based on Q1b-Q1d, how much should the 90 PUT be priced at?

Reference no: EM132660411

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