Construct a binomial model to price a call

Reference no: EM131961146

Question: Construct a 5-period binomial model to price a call and a put European stock options with strike price K = $50 and maturity T = 0.5, while the current stock price is assumed to be S_0 = $50, with volatility sigma = 25%. The risk-free interest rate is assumed to be r = 2%. Compare these prices with the Black-Scholes formula prices and verify the put-call parity relation.

Reference no: EM131961146

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