medium · Quantitative Finance
A stock trades at S₀ = 100. In a one-period binomial tree, the price can move to S_u = 120 or S_d = 90. The risk-free rate is r = 5% continuously compounded for a period of T = 1. Calculate the risk-neutral probability p^* of an upward move.
- 0.504
- 0.513
- 0.333
- 0.400
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