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Find the possible values of the stock

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Reference no: EM133069521

Consider a binomial model with u = 1.2,d = 0.8 and periodic interest rate r=0.1. Suppose that S=10attimet=0.

(a) Find the possible values of the stock at time t = T. Is the model complete?

(b) Find the payoff at time t = T of a bull spread with exercise price K1 = 9 for the long call and exercise price K2 = 11 for short call.

(c) Find the replicating portfolio for the spread of question (b).

(d) Find the arbitrage-free price for the spread of question (b).

Reference no: EM133069521

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