Question

A stock price is currently $80. It is known that at the end of four months it will be either $75 or $85. The risk-free rate is 5% per annum with continuous compounding. What is the value of a four-month European put option with a strike price of $80?

Answer 1

=((e^(0.05*4/12)-75/80)/(85/80-75/80)*MAX(85-80,0)+(1-(e^(0.05*4/12)-75/80)/(85/80-75/80))*MAX(75-80,0))+80*e^(-5%*4/12)-80

=$1.850