Solution-What are the market prices of at-the-money

What are the market prices of at-the-money

Reference no: EM133075705

Consider a stock which is currently selling at $4.5. The stock price will either go up to $5 + x with probability 0.5 or go down to $5 - x with probability 0.5 one period later. The one-period riskless rate of interest is 5%.

(a) What are the market prices of at-the-money call options that expire at the end of the period when x is set equal to $0.5, $1, $1.5, $2, and $2.5, respectively?

(b) Plot the one-period call option prices against the five possible values of x.

(d) Redo parts (a) to (c) for at-the-money put options that expire at the end of the period.

Reference no: EM133075705

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What are the market prices of at-the-money

Reference no: EM133075705

Reference no: EM133075705

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