A stock's price is currently $84.00. Assume that at the end of 3 months it...
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A stock's price is currently $84.00. Assume that at the end of 3 months it will be either $90.00 or $80.00. The risk-free interest rate is 5% per annum with continuous compounding. What is the value of a 3-month European call option with a strike price of $87.00? Use no-arbitrage arguments. Now calculate the value of a 3-month European call option with a strike price of $87.00 using risk-neutral valuation. Calculate p and q by equating the value of a
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