CFA Level 2
Derivatives

Valuing a European Call Option Using a Binomial Model

Hard Option Valuation Binomial Models

A stock is currently trading at $100. The stock is expected to increase by 20% or decrease by 15% over the next period. Using a two-period binomial model, you are tasked to value a European call option with a strike price of $110. Assume that the risk-free rate is 5% per period.

Calculate the value of the European call option at the end of the second period.

Hint

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