Question

Assume the annual continuously compounded rate is 10%, the annual standard deviation of stock returns is 0.30 (i.e., 30%), and the Time-to-Maturity is 1 year. The current stock price is $100. What is the value of an option that pays $1 if the stock price at maturity falls within the range $50 to $150, and 0 otherwise. Use the Binomial Option Pricing Model for N (the number of periods) = 7. Please share a clear looking excel, it is very hard to guess what you are talking about?

Answer 1

To value the option, we can use the Binomial Option Pricing Model.

Step-by-step explanation:

To value the option, we can use the Binomial Option Pricing Model. Here are the steps:

1. Calculate the value of the stock at each node.
2. Calculate the probability associated with each node.
3. Calculate the option value at each node.
4. Discount the option values at each node to the present.
5. Sum up the discounted option values to get the final value.

Using the provided information, we can calculate the option value using the Binomial Option Pricing Model in Excel.