Find the expected present value of selling a one-year call


Suppose monthly stock prices are modeled as a stochastic process using a closed, additive binomial lattice, the current price is 100, up moves are 1, and the probability of an up move is always .55. Also assume that one-year call options with a strike price of 100 are priced at 10, two-year call options with a strike price of 100 are 8, and e ective annual risk-free interest rate is 6%. Find the expected present value of selling a one-year call and buying a one-year put.

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Financial Management: Find the expected present value of selling a one-year call
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