medium · Quantitative Finance derivatives
A stock is modeled using a two-step binomial tree over T = 1 year with Δ t = 0.5. The current price is S_0 = 100, volatility σ = 0.20, and the risk-free rate r = 5%. Using the Cox-Ross-Rubinstein calibration where u = e^σ √(Δ t) and d = 1/u, calculate the value of a 1-year European put option struck at K = 100.
- $10.72
- $3.85
- $4.67
- $5.57
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