Business, 06.04.2020 22:20 kimmosley80

In this problem, a single period CRR model with S0 =$100, S1 =$200 or $50, and r =0.25.
a. Find the arbitrage free initial price of a European call option for one share of stock where the strike price K =$100 and the exercise time T = 1.
b. Find the hedging strategy that replicates the value of the option described in (a).
c. Suppose that the option is initially priced at $1 above the arbitrage free price. Describe a trading strategy that is an arbitrage opportunity.
d. What its he arbitrage-free initial price for a put option with the same strike price

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In this problem, a single period CRR model with S0 =$100, S1 =$200 or $50, and r =0.25.
a. Fin...

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