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Black-Scholes-Merton and binomial tree

Consider a six-month European call option on a non-dividend-paying stock. The stock price is $30, the strike price is $29, and the continuously compounded risk-free interest rate is 6% per annum. The volatility of the stock is 20% per annum.

a) Value this option using the Black-Scholes formula. Illustrate each step in your calculation.

b) Please use a one-step binomial tree to value this option.

c) Please use a two-step binomial tree to value this option.

d) Compare the results from b) to c) with what you get using the Black-ScholesMerton formula.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92758811

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