What is the price of exotic option

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Question 1: The current stock price is $80. After six months, it either goes up by a factor u = 1.20 or it goes down by a factor d = 0.80. The continuously compounded risk-free rate is 4.24% per year. Consider an exotic option whose payoff after six months is given by the stock price S(T) squared less the strike price (K = $7,500) if it has a positive value, zero otherwise, that is: max[S(T)2 - 7,500, 0]. What is the price of the exotic option?

Select one:

a. $920
b. $930
c. $940
d. $950
e. $960

Reference no: EM132873312

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