Ask Question
30 October, 11:45

A stock index is currently 1,500. Its volatility is 18%. The risk-free rate is 4% per annum (continuously compounded) for all maturities and the dividend yield on the index is 2.5%. Calculate values for u, d, and p when a six-month time step is used. What is the value a 12-month American put option with a strike price of 1,480 given by a two-step binomial tree.

+2
Answers (1)
  1. 30 October, 13:07
    0
    0.4977

    Explanation:

    U = e 0.18*0.5 = 1.1357

    D=1/u

    D=1/1.1357

    =0.8805

    P=e (0.04-0.025) * 0.5 - 0.8805 / 1.1357-0.8805

    =0.4977

    Therefore the value a 12-month American put option with a strike price of 1,480 given by a two-step binomial tree will be 0.4977
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “A stock index is currently 1,500. Its volatility is 18%. The risk-free rate is 4% per annum (continuously compounded) for all maturities ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers