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25-11-2022
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1. A non-dividend-paying stock selling at $100 will either go up by 10% or go down by 10% each month for the next 2 months. The constant risk-free rate is 12% per annum with continuous compounding. a) What is the price of a 2-month American call option with a strike price of $95?
b) What is the price of a 2-month American put option with a strike price of $95?
c) How will your answers to a) and b) change if the stock price goes up by 10% but goes down by 20% (instead of 10%) each month for the next 2 months?

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