Discussion Post: Financial Derivatives
• The current stock price be SAR 50 and that can go up or down by 20 percent per period. The risk-free rate is 10 percent. Use one binomial period.
o Determine the two possible stock prices for the next period.
o Determine the intrinsic values at expiration of a European call option with an exercise price of SAR 45.
o Find the value of the option today.
o Calculate the hedge ratio.
• Explain the concept of moneyness?
• Explain the Options and discuss the difference between American and European options.
The response must include a reference list. Using Times New Roman 12 pnt font, double-space, one-inch margins, and APA style of writing and citations.