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What is the risk neutral probability

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Question - Use a two-stage binomial tree to calculate the price of a six-month at-the-money European call option on December gold futures. December gold futures are currently trading at USD 1,300 per oz. Assume the volatility of the future contract and the volatility of spot gold are both 40% per annum. The risk-free rate is 4% per annum and the gold yield rate is 2% per annum, both continuously compounding.

What is the risk neutral probability (0.0 to 1.0) of a branch increasing in value, to two decimals places?

Reference no: EM133036488

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