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Business, 06.05.2020 02:07 issa82

A stock price is currently $50. It is known that at the end of six months it will be either $60 or $42. The risk-free rate of interest with continuous compounding is 12% per annum. Calculate the value (to the nearest cent) of a six-month European call option on the stock with an exercise price of $48. Verify that no-arbitrage arguments and risk-neutral valuation arguments give the same answers. Show your working. Compute the delta of the option as an intermediate step. Compute the probability of an upward stock price movement in a risk-neutral world. as an intermediate step. Assume six months is 0.5 years.

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A stock price is currently $50. It is known that at the end of six months it will be either $60 or $...
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