Hi everyone,
I'm having difficulties with figuring this one out so I'd appreciate your help. It goes like this:
Suppose you sold option on stock (which is currently worth $50). Stock can go up and down by a factor of 2 (that is 100 or 25) and it can also go down to 20% of its current value (meaning 10).
If r=10% and the put option with strike (K) is $150 costs $1 then what is the value of CALL option with strike K=15?
The probabilities are: 50% of going up, 49% of going down and 1% of plummeting?
