What is the risk-neutral probability

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Problem - Currently, the spot price of a non-dividend-paying stock is $100 per share. It will increase to $110 or decrease to $90 in 1 year. Suppose that the risk-free rate is always 3% per annum with continuous compounding.

Required -

(a) What is the risk-neutral probability that the stock price will move up?

(b) What is the price of a 1-year European call option on this stock with a strike price of $105?

(c) What is the delta corresponding to stock price movement over the year?

Reference no: EM132746747

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