Binomial Model

Q.1. Say a share is currently available for Rs. 100. Expected price one year from now will be
either up by 25% or down by 20%. The risk-free rate is 7%. Exercise price of call say Rs. 110.
What should be the amount charged for writing such a call option?
Q.2. Suppose a share of Rakesh Ltd. Is currently trading at Rs. 250 per share and it is known
from past stock volatility that at the end of 3 months it will be change by 10%. Now, if strike
price of a 3-month call option on above share is Rs. 265 with risk free rate of 12%, What should
be the amount charged for writing such a call option?
Q.3. Say a share is currently available for Rs. 100. Expected price one year from now will be
either up by 25% or down by 20%. The risk-free rate is 7%. Exercise price of put say Rs. 110.
What should be the amount charged for writing such a put option?
Q.4. Suppose a share of Rakesh Ltd. Is currently trading at Rs. 250 per share and it is known
from past stock volatility that at the end of 3 months it will be change by 10%. Now, if strike
price of a 3-month put option on above share is Rs. 265 with risk free rate of 12%, What should
be the amount charged for writing such a put option?
Q.5. Say a share is currently available for Rs. 100. Expected price one year from now will be
either up by 25% or down by 20% in each of the futures periods (Say 2 periods). The risk-free
rate is 7%. Exercise price of call say Rs. 110. What should be the amount charged for writing
such a call option?