This question is regarding option pricing using two stage binomial tree.
I have two questions regarding the answer provided:
1. Why is the strike price 30 rather than 32? In the reading, it was mentioned that the project can be bought at 32 million Euro.
2. In the calculation for risk neutral probability, where is the 0.8333 from? The up movement should be 15% and down movement should be 20%. So in my opinion, u = 1.15 and d = 0.8. Correct me if I am missing something here.
Thanks.
I have two questions regarding the answer provided:
1. Why is the strike price 30 rather than 32? In the reading, it was mentioned that the project can be bought at 32 million Euro.
2. In the calculation for risk neutral probability, where is the 0.8333 from? The up movement should be 15% and down movement should be 20%. So in my opinion, u = 1.15 and d = 0.8. Correct me if I am missing something here.
Thanks.