You want to price an American Put option that is written on the stock of Shelby Ltd. The price of the stock is £20, the risk-free interest rate is 5%, the annualised volatility of the stock is 42% and the option expires in 5 months. Given that information, calculate the up-multiplier to be used in a nine-step binomial tree.
You want to price an American Put option that is written on the stock of Shelby Ltd. The price of the stock is £20, the risk-free interest rate is 5%, the annualised volatility of the stock is 42% and the option expires in 5 months. Given that information, calculate the up-multiplier to be used in a nine-step binomial tree.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![You want to price an American Put option that is written on the stock of Shelby Ltd. The price of the stock
is £20, the risk-free interest rate is 5%, the annualised volatility of the stock is 42% and the option expires
in 5 months. Given that information, calculate the up-multiplier to be used in a nine-step binomial tree.
Write your answer in decimal form with up to three decimal points
Answer:](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0637fe70-7f48-40df-b426-2d008ce45af8%2Fc18a2c59-d60a-4779-85c1-f000f3351732%2Fb445arr_processed.png&w=3840&q=75)
Transcribed Image Text:You want to price an American Put option that is written on the stock of Shelby Ltd. The price of the stock
is £20, the risk-free interest rate is 5%, the annualised volatility of the stock is 42% and the option expires
in 5 months. Given that information, calculate the up-multiplier to be used in a nine-step binomial tree.
Write your answer in decimal form with up to three decimal points
Answer:
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