Q-1. The current stock price be SAR 50 and that can go up or down by 20 percent per period. The risk-free rate is 10 percent. Use one binomial period. a) Determine the two possible stock prices for the next period. (1 Mark) b) Determine the intrinsic values at expiration of a European call option with an exercise price of SAR 45. c) Find the value of the option today. d) Calculate the hedge ratio. Q-2. Explain the concept of moneyness? Q-3. Explain the Options and discuss the difference between American and European options.
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