1. You inherit a package of call options on a stock currently selling for $53 (all of the call options expire in exactly one year). In a year, the stock could sell for anywhere between $40 and $80. The package consists of 1 call with a exercise price at $50, 1 written call with an exercise price of $55, one written call with an exercise price of $60 and one call with an exercise price of $65. Just to be clear, you have two calls and two written calls.
a. What is the payoff structure for this portfolio of options? A graph would be an appropriate way to answer this part of the question.
b. What can be known about the sum of the prices of the $50 and $65 calls relative to the sum of the prices of the $55 and $60 call? That is, is C50+C65 greater than, equal to or less than C55+C60? How do you know?

2. You observe that a stock is currently selling for $100. Somehow you know that the two possible values for the stock at time T are $80 and $130. You also observe that (1+r)T = 1.1. You don't know the probabilities of the two states of the world occurring. Using the two-state approach, determine the value of a T period call option with an exercise price of $110.

Answers and explanations to 2 questions on derivatives- the first one on payoff structure for a combination of call options, the other on Binomial tree.

1) Consider a stock currently selling for $80. It can go up or down by 15% per period. The risk-free rate is 6%. Use a one period binomial model. You want to price a European call option with exercise price of $84.
a. Determine the two possible stock prices at expiration.
b. Construct two portfolios with equivalent payoffs. On

Calculate of the price of a call option by binomialtree models and compare the results with the theoretical Black-Scholes formula.
Parameters:
Strike price = $120;
Expiration time = 1 year;
Annual interest rate = 0.05;
Stock volatility = 0.35.
For the initial stock price, S0 = 100.45
Requirements:
1. Find the price

I'm trying to answer the questions about the two period binomialtree pasted here. Thanks for your help!!
Pricing options on binomialtree: Consider a two-period binomial example where the underlying asset's price movements are modeled over the next two months, each period corresponding to one month. The current level of the

The current price of a stock is $20. In 1 year, the price will be either $26 or $16. The annual risk-free rate is 5%. Find the price of a call option on the stock that has a strike price of $21 and that expires in 1 year.

17. A stock price is currently $100. Over each of the next two three-month periods it is expected to increase by 10% or fall by 10%. Consider a six-month European call option with a strike price of $105. The risk-free rate is 8%. What is the risk-neutral probability of a 10% rise in both quarters?
a. 0.10
b. 0.24
c. 0.3

Attached is word doc describing requirements as well as the Excel template. Please let me know if you can help me with this request.
Excel programming: option pricing with six-step binomialtree
You need to have six input cells: S, X, rannual, Ďannual, T, and N=6. All other cells should be formulas and automatically c

Please check the document attached. Thanks
(I've added risk free rate, time to expiration, current price)
Date Open High Low Close Adj Close
2/17/2009 5.07 5.21 4.51 4.57 4.57
2/9/2009 6.57 7.05 5.35 5.57 5.57
2/2/2009 6.20 6.66 3.77 6.13 6.13
1/26/2009 6.46 7.81 6.00 6.58 6.58 I need to know, weekly log r

5) Binomial Option Pricing: Suppose we live in a 3 period Black-Scholes world, t=0,1,2 whichidentify as follows. There is a stock with price S(0)= 1 in period 0.In each period , t=1,2, the price can either go up to u. S or down to d.S.
Suppose u=1.2 and d=0.9. Suppose that the interest rate is constant at 4%.
A) What i