One-Step Binomial Model: Risk-Neutral Probability - Quant Trader Interview Question
Difficulty: Medium
Category: Options & Greeks
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Topics: binomial-tree, risk-neutral-probability, options, probability, expected-value
Problem Description
A stock is currently trading at 100 dollars. Over the next period, it is expected to either increase to 110 dollars or decrease to 90 dollars. The risk-free rate is 5% per period. Assuming no dividends, calculate the risk-neutral probability of the stock price increasing.
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