Chapter 03 · Section 3.1

Discrete option value calculation

Imagine that stock XXX can only take on the values of 20, 40, 60, 80 and 100. Suppose that for the given expiration, the probabilities associated with each of these prices are known and correspond with the values indicated in the graph. For simplicity, assume that the interest rate is zero.

What will be the price of a european call with an exercise price of 60?

a) -1000
b) -56
c) +8
• d) --99999999/99999999
  No. The result of your calculation is @INPED , which does not correspond to the exact response.

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