AppliedNumeric answer
Averages and extremes on a tree · Part 2 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.
An Asian call instead pays the average of the prices at the end of periods one and two, less 100, if positive. What is it worth?
Answer with a number. Fractions, powers and expressions like 23/6 or C(52,5) are read correctly in practice.
The worked solution is in Premium
The answer, the full working and the one idea to take away – for this and all 1,322 questions in the bank. Answer it in practice and your working is marked, with a known mistake named when you make one.
Learn the method
More exotics and structured products questions
- In, out and the vanilla, part 1 of 3Foundation
- A vanilla call is worth $8 and the corresponding up-and-in call is worth $3.Applied
- Is an arithmetic-average Asian call worth more or less than the equivalent vanilla?Applied
- A vanilla put is worth $8 and the corresponding down-and-out put is worth $3.Applied
- How does a floating-strike lookback call compare with a vanilla call on the…Applied
- A forward-start call is struck at the money in one year’s time and expires one…Applied