Nondividend-paying stock

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Consider a chooser option (also known as an as-you-like-it option) on a nondividend-paying stock. At time 1, its holder will choose whether it becomes a European call option or a European put option, each of which will expire at time 3 with a strike price of $100. The chooser option price is $20 at time t 0. The stock price is $95 at time t = 0. Let C(T) denote the price of a European call option at time t = 0 on the stock expiring at time T, T 0, with a strike price of $100.

You are given:

(i) The risk-free interest rate is 0.

(ii) C(1) $4.

Determine C(3).

Reference no: EM131850409

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