Pricing and hedging 1220consider a european call option on, Ask an Expert

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'Pricing and Hedging' 12.20.

Consider a European call option on a non-dividend-paying stock where the stock price is $40, the strike price is $40, the risk-free rate is 4% per annum, the volatility is 30% per annum, and the time to maturity is 6 months.

(a) Calculate u, d, and p for a two-step tree.

(b) Value the option using a two-step tree.

(d) Use DerivaGem to value the option with 5, 50, 100, and 500 time steps.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91581916

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