The value of stock

by | Jun 14, 2021 | Assignment Help

A stock price is currently $30. It is known that at the end of three months it will be either $35 or $25. The risk-free rate of interest with quarterly compounding is 12% per annum.

Calculate the value of a three-month European put option on the stock with an exercise price of $30. Verify that no-arbitrage arguments and risk-neutral valuation arguments give the same answers.

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