Exercise 9

Exercise Set 9 is available for self-study, as there is no teaching on Thursday 29 October. It covers two-period European call and put pricing by direct risk-neutral expectation and backward induction, dividend-adjusted risk-neutral probabilities, and European call pricing using the CRR binomial sum.

Exercise set:

• Exercise Set 9

Solution set:

• Solution set for Exercise 9

Material used:

• Petters–Dong, Sec. 8.5.2, One-Period Binomial Pricing by Risk Neutrality, pp. 415–417; Sec. 8.5.3, Two-Period Binomial Pricing, pp. 417–420; Sec. 5.2.2, The Risk-Neutral CRR Tree, pp. 230–236.
• Pliska, Sec. 3.5, The Binomial Model, pp. 100–105.

Exercise Set 10 for Thursday 5 November