The current price of a non-dividend-paying biotech stock is, Ask an Expert

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The current price of a non-dividend-paying biotech stock is $140 with a volatility of 24%. The risk-free rate is 4%. A trader is using a two-step binomial tree to value a 6-month European call option. The strike price is $150. A. What are the up- and down-movement u and d? B. What are the probabilities of an up- and down-movement in a risk-neutral world? C. What is the value of the European call option? D. Suppose that a trader sells 10,000 European call options. What position should the trader take to hedge the position for the first three-month period? (Hint: You need to find the delta for the first three-month period. Do not use the Black-Scholes delta.)

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92766171

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