medium · Quantitative Finance
A stock trades at S_0 = $100. A one-period binomial tree assumes the stock moves to $120 (u = 1.2) or $90 (d = 0.9).
If the risk-free growth factor over the period is 1.02, what is the risk-neutral probability p^* of an up move?
- 0.33
- 0.60
- 0.40
- 0.50
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