Previously, the emphasis was on obtaining information from clients. In this chapter, the emphasis was on preparing witnesses for trial. To properly prepare witnesses for trial, the paralegal needs to….
calculate the value of a European call with a strike price of 100 and a maturity of one year.
a. Binomial pricing algorithm In a spreadsheet, build a 12-step binomial tree to calculate the value of a European call with a strike price of 100 and a maturity of one year. Assume that the 1-month interest rate is constant at 10% p.a., that the underlying stock pays no dividend and has a spot price of 100 which may go up or down by 2% every month.
b: Barrier option.
With a 3-step binomial tree calculate the value of a knock-out call with barrier H = 80. Assume that the price of the underlying may increase or decrease by 15 at each step, that there are no dividends, and that the interest rate is zero.