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Detailed answers to Veronesi's book chapter questions?

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Hi @David Harper CFA FRM ,

Do you offer detailed answers for Veronesi's questions under each chapter? If so, I am willing to buy...

I am struggling very bad with the following question from chapter 11, that is to calculate the option price from a binomial interest rate tree.

The following interest rate binomial tree is provided:

Consider the risk-neutral probability = 1/2 (constant through all periods) and delta = 1, then:

What is the value of this option? Answer is 0.1532, but I don't know how to get there.

For reference, discount factors for i = 0, i = 1 and i = 2 are: Z(0,1)=0.9608 Z(0,2)=0.9141 Z(0,3)=0.8659

Any help will be appreciated

David Harper CFA FRM

David Harper CFA FRM
Staff member
@Franjey I don't have it handy sorry. Because you are not a paid subscriber, can i kindly ask you to address questions to the general audience rather than me directly (I am totally willing to help where I can, or where it benefits FRM candidates, but my priority must be paying subscribers. I review every single forum post, so you do not need to address me personally in order for me to see your post. I will still review it. I have two criteria for helping non-payers: 1. can i help quickly; i.e., i always help with I can respond quality, or 2. is it high value-add to paid subscribers?). Thanks