Write the current fair value of the european call

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Reference no: EM131928502

# Interest rates are expressed as annualized rates for the term specified. Report your interest rate answers as fractional numbers like 0.11 for 11% per year.

Q- Consider a European Call and a European Put option on a stock trading at a price of A1. The exercise price of either option is A2 and the time to maturity is A3 months. The stock's volatility (sigma) is A4 per annum, and the risk-free interest rate is A5 percent per annum, continuously compounded. Use a five step binomial model to find the current fair values of the call and put options.

Write the six risk-neutral probability weights from top to bottom of stock price realizations at maturity:

Write the six values (cash flows) of the Call option from top to bottom at maturity:

Write the six values (cash flows) of the Put option from top to bottom at maturity:

Write the current fair value of the European Call

Write the current fair value of the European Put

Write the value of "u"

Write the value of "p":

A1=48.94

A2=46.94

A3=18.38

A4=0.8094

A5=6.188

Reference no: EM131928502

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