Question 13.5: A Put-Option Valuation. Suppose the value of an asset today ...

Contemporary Engineering Economics [EXP-19776]

A Put-Option Valuation

Suppose the value of an asset today is $50, and it is known that in one year the asset price will go up by u = 1.2 or down by d = 0.8 (i.e., uS = $60 and dS = $40, respectively). What is the value of a European put option with an exercise price of $55 that expires in T = 1 year? Assume a risk-free rate of 6% compounded continuously.

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