Find the risk-neutral value of the call at time

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Reference no: EM132040880

This problem refers to a two period binomial aribitrage for a call. The following information applies:

u = 1.33333

d = .66666

C(market) = 6.00

X = 30

S0 = 30

rf=10%

a. Find the risk neutral probability of up and down, p and (1-p).

b. Find the risk-neutral value of the call at time = 0.

c. Set up the arbitrage at time 0 by finding delta at time zero.

d. Assuming that the stock price first goes up and then goes down, show the steps in the arbitrage that occur through time.

Reference no: EM132040880

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