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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 $42. The risk-free rate of interest with
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 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.
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