medium · Quantitative Finance derivatives
A stock is modeled on a two-step binomial tree. At the lower mid-tree node (S_down), the two possible successor payoffs at expiry are 0 (for the up move) and 24.64 (for the down move).
If the risk-neutral up-probability is p = 0.5539 and the discount factor for one step is e^-rΔ t = 0.9753, what is the value at the S_down node?
- 13.65.
- 10.99.
- 24.03.
- 10.72.
Sign up free to see the explanation and track your rank →
More Quantitative Finance derivatives practice
- If the underlying stock price S moves by +$2.00 over a very short interval, what is the es
- If the risk-neutral probability of an up move is p = 0.6 and the risk-free rate is zero, w
- When pricing a 'Digital' (or Binary) call option near expiry with the spot price very clos
- In the context of the Black-Scholes PDE, the Greek 'Theta' (Theta) measures the sensitivit
- When calibrating a Heston stochastic volatility model, a pra… — Does this calibration sati
- Based on put-call parity, what is the arbitrage-free relationship?
- Given a continuously compounded risk-free rate of 5%, what is the price of the correspondi
- If the risk-free growth factor is e^rT = 1.02, what is the risk-neutral probability p^* of