easy · Quantitative Finance
A stock trades at S_0 = 100 with σ = 20% and r = 5%. Using a 2-step Binomial tree for a 1-year European put with K = 100, the calculated terminal payoffs are 0 (Up-Up), 0 (Up-Down), and 24.64 (Down-Down).
If the risk-neutral probability p = 0.5539 and the discount factor per step is e^-0.025, what is the value of the put at the initial root node?
- $12.32
- $4.67
- $5.57
- $10.72
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