In a one-period binomial model,assume that the current stock price is $100,and that it will rise to $110 or fall to $90 after one month.If the risk-free rate is 0.1668% per month in simple terms,what is the price of a 99-strike one-month put option?
A)$4.02
B)$4.42
C)$4.49
D)$4.57

Question

Quizplus · Accepted Answer

We solve for the risk-neutral probability and then for the value of the put option:
> u = 1.1
> d = 0.9
> R = 1.001668
> q = (R-d)/(u-d)
> q
[1] 0.5083403
> put = (99-90)*(1-q)/R
> put
[1] 4.417569
Of course,the same price would result if we used replication.

In a One-Period Binomial Model,assume That the Current Stock Price