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CFA Level 2
Derivatives

Intrinsic Value Calculation Using Binomial Model

Very Easy Option Valuation Binomial Models

Consider a stock currently priced at $100. Using a one-period binomial model, it can either move up by 20% or down by 10%. You have a call option on this stock with a strike price of $105. Calculate the option's intrinsic value in both the up and down states, and identify which state would yield the higher intrinsic value.

Hint

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