explain the difference between a call option and a put option. explain the diffe
ID: 2792744 • Letter: E
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explain the difference between a call option and a put option. explain the difference between ... Your question has been answered Let us know if you got a helpful answer. Rate this answer Question: Explain the difference between a call option and a put option. Explain the difference between an ... Explain the difference between a call option and a put option. Explain the difference between an American option and European option. Find the value of a call option using the binomial option pricing formula for single period when given the following information: you have an option with 6 months until expiration, the payoff in the up scenario is $12, and the payoff in the down scenario is $0, the risk-free rate is 5%, the weight for the up scenario is 1.1, and the weight for the down scenario is 0.7
Explanation / Answer
Difference between call option and put option:A Call Option gives the buyer the right but not the obligation to buy the underlying security at the exercise price. A Put Option gives the buyer the right but not the obligation to sell the underlying security at the exercise price. However both the option holder are chaged with a premium at certain percentage.
Difference between american option and european option :
The key difference between American and European options relates to when theoptions can be exercised: A European option may be exercised only at the expiration date of the option, i.e. at a single pre-defined point in time. An American option on the other hand may be exercised at any time before the expiration date.
Facts : expiry term - 6 months , payoff upside 12 $ payoff downside 0$. weights upside 1.1 downside 0.7 Rf = 5%pa
using binomial model value of call option can be calculated
c = CuWu + Cd(Wd)/R
= 12*1.1+0*.7/1.025
= 12.87$
=
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