Chapter 03 · Section 3.1
Binomial Pricing Question 8
The diagram of the stock price evolution develops in this direction ------>
<--------The diagram of the call value evolution develops in this direction.
What is the price of the call?
a) --999999/-1
b) -40.41
c) -10
d) +36.73
The value is obtained in the following manner: (1/(1+interest rate)) x {(3rd period call value x probability of attaining that value) + (3rd period call value x probability of attaining that value)}.