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A stock price is currently $30. During each two-month period for the next four months it will increase by 8% or decrease by 10%. The risk-free...
A stock price is currently $30. During each two-month period for the next four months it will increase by 8% or decrease by 10%. The risk-free interest rate is 5%. Use a two-step tree to calculate the value of a derivative that pays off [max(30-ST, 0)]2, where ST is the stock price in four months.