Estimate the value of the option

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Reference no: EM131240888

Consider a European put option on a non-dividend paying stock when the stock price is $100, the strike price is $110, the risk-free rate is 5% per annum, and the time to maturity is one year.

Suppose that the average variance rate during the life of an option has a 0.20 probability of being 0.06, a 0.5 probability of being 0.09, and a 0.3 probability of being 0.12. The volatility is uncorrelated with the stock price. Estimate the value of the option. Use DerivaGem.

Reference no: EM131240888

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