Business, 27.04.2021 15:10 ammarsico19

There is a call option with 6-month expiration. The call option allows you to purchase a 6-month zero-coupon bond with $1000 par value at the price of $970 in the next period. Price the call option using the risk-neutral binomial tree that you developed in 1b. Construct a bond portfolio of 0.5Y and 1Y zero-coupon bonds such that the bond portfolio has cash flows identical to those of the call option. Verify that the price of the bond portfolio is identical to the price of the call option.

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There is a call option with 6-month expiration. The call option allows you to purchase a 6-month zer...

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