Consider a one-step binomial model over a 3-month period. The current asset price is $100. In 3 months, the asset price will increase by 8% with probability 70% and decrease by 5% with probability 30%. The risk free interest rate is 1% per year with continuous compounding. What's the price of a 3-month at-the-money European call option? Keep 2 digits after the decimal point. Do not include $ sign in your answer.

Consider a one-step binomial model over a 3-month period. The current asset price is $100. In 3 months, the asset price will increase by 8% with probability 70% and decrease by 5% with probability 30%. The risk free interest rate is 1% per year with continuous compounding. What's the price of a 3-month at-the-money European call option? Keep 2 digits after the decimal point. Do not include $ sign in your answer.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter11: Managing Transaction Exposure

Section: Chapter Questions

Problem 56QA

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