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Find out the current value of call option

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Reference no: EM133055796

A stock is currently worth $50. Over the next month its price is expected to go up by 5% or down by 5%. Consider a 1-month at-the-money European call option on this stock. Suppose that you want to value this option following the no-arbitrage approach with one-step binomial model. You first build a riskless portfolio combining a long position in one call option and some shares of the stock. How many shares should you long or short? Based on your riskless portfolio and the no-arbitrage approach with one-step binomial model, please find out the current value of this call option. Assume risk free rate is 10%, continuously compounded.

Reference no: EM133055796

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