True probability

We determined in class that the true probability of an up or down move is “not important” for pricing options. How do you reconcile this with your answer in part d)?SusdsRfud 1) 4360301%1.400.70 continuously compunded = e^0.01 = 1.0101 E = 50p= R-dU-d q = 1-p = 0.44780.5522 cu = 10cd = 0Value of call option i.e C0 = $ 4.43 2) Risk adjusted…

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