medium · Quantitative Finance
Using a two-step binomial tree to price a 1-year European put with S_0 = 100, K = 100, σ = 0.20, and r = 0.05, the risk-neutral probability is p = 0.5539 with Δ t = 0.5.
If the terminal nodes for the stock are 132.69, 100.00, and 75.36, what is the estimated value of the put today?
- $2.59
- $5.57
- $10.99
- $4.67
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