Test Bank: Chapter 18 Binomial Trees in Practice An exchange rate has a volatility of 12% The domestic and foreign risk-free interest rates are both 4%, respectively The time step on a binomial tree is three months (i) What are the p , u and d parameters for a Cox, Ross, and Rubinstein tree? Give four decimal places u =_ _ _ _ _ _ d= p= A stock price is initially $30 and u in the Cox-Ross-Rubinstein tree is 1.1 What are the stock prices at the end of two time steps _ _ _ _ _ _ and _ _ _ _ _ _ and _ _ _ _ _ _ Which of the following cannot be calculated directly from a binomial tree (Circle two) (a) vega (b) delta (c) rho (d) gamma (e) theta A binomial tree prices an American option at $3.12 and the corresponding European option at $3.04 The Black-Scholes price of the European option is $2.98 What is the control variate price of the American option? A stock price is initially $30 and a dividend of $2 is expected at the end of 1.5 months The volatility is 30% In a two step tree with each step equal to one month what is the stock price on the middle node at the end of the tree? (Give two decimal places) _ _ _ _ _ _