80.2K
Verified Solution
Link Copied!
Please show all work so I can learn. Thanks!
For a stock, you are given:
- The current stock price is 90
- The stock pays dividends continuously at a rate proportional to its price. The dividend yield is 2%
- The stocks volatility is 20%
- You use a three-period forward binomial tree to model the movement of the stock price. The length of each period is 3 months
You are also given that the continuously compounded risk-free rate is 10%
Consider a 9-month 90-strike American put on the stock, calculate the risk-neutral probability that option will be exercised before maturity.
___________________________________
A) 0.1447
B) 0.2756
C) 0.3928
D) 0.5249
E) 0.7244
Answer & Explanation
Solved by verified expert
