Find the value of a two period abc american call

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The price of ABC stock is binomially distributed, either moving up 30%, or down 20%, each period. Assume there are no dividends. The current stock price is $100/shr, and the risk-free rate is 5% per period.

a) Show the implied 2 period pattern (show t0, t1, and t2), of future stock prices, and find the pseudoprobability, "P" of an up move.

b) Find the value of a two period ABC American CALL that expires at t2 and whose strike price is $105/shr.

c) Find the value of a two period ABC American PUT that expires at t2 and whose strike price is $105/shr.

d) FInd the value of a two period ABC European PUT that expires at t2 and whose strike price $105/shr.

 

Reference no: EM13267010

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