QUESTION 1 (this question a little bit different with my question, but please do the calculation with excel too as well)
Consider a one year put option on Rosie Corp shares. The current stock price is $100, the strike price is $110, the risk free rate is 2% per annum, the stock price volatility is 20% per annum, the stock is not expected to pay any dividends over the next year and the underlying of each option is one Rosie Corp share.
Assume the option is European and the stock price follows a twelve-period multiplicative binomial process over the next year.
Use risk neutral valuation to determine the current value of the option.
Answer:
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