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Averages and extremes on a tree · Part 1 of 3
A stock at $100 moves up 10% or down 10% in each of two periods, with risk-neutral probability ½ of each and zero rates. Options have a strike of $100.
Start with the plain case: what is a two-period European call on this tree worth?
Answer with a number. Fractions, powers and expressions like 23/6 or C(52,5) are read correctly in practice.
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