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For the situation considered in Problem 12.12, what is the value of a 6-month European put option with a strike price of $51? Verify that the European call and European put prices satisfy put-call parity. If the put option were American, would it ever be optimal to exercise it early at any of the nodes on the tree?

Problem:
A stock price is currently $50. Over each of the next two 3-month periods it is expected to go up by 6% or down by 5%. The risk-free interest rate is 5% per annum with continuous compounding. What is the value of a 6-month European call option with a strike price of $51?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91993174

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