Menu
support@graduatecourseshelp.com
+1(805) 568 7317

calculate the future and future prices 620223

In an arbitrage-free market, there are two time intervals and random interest rates between time 2 and time 3. Assume that an asset would pay no dividends during these two intervals. Each row of the following table shows a possible evolution of asset prices from time 1 to time 3.

EVOLUTION OF ASSET PRICES

Time 1

Time 2

Time 3

$5

$6

$8

$5

$6

$5

$5

$3

$5

$5

$3

$3

The interest rate between time 1 and time 2 is 10%; the interest rate for the first two situations between time 2 and time 3 is 12%, and 8% for the last two situations.

  1. Calculate all the risk-neutral probabilities between time interval 1 and 2 as well as time interval 2 and 3.
  2. Calculate the future and future prices.

"Order a similar paper and get 15% discount on your first order with us
Use the following coupon
"GET15"

Order Now