Following is the information available pertaining to shares of Omni Ltd.: Current Market Price (₹) 840.00 Strike Price (₹) 900.00 Maximum Price (₹)…

(a) (a) Call Option value using Binomial Model 1050 (150) 840 u = 1050/840 = 1.25 d = 756/840 = 0.90 r = 1.0202 p = (r-d) / (u-d) = (1.0202-0.90) / (1.25-0.90) = 0.1202/0.35 = 0.34 (Prob. of increase in Price of Share) Prob. of decrease in Price of Share = 1 – 0.34 = 0.66 Value of Option = (0.34 (150) +0.66 (0) ) / 1.0202 = 49.99 (b) Value of Call Option using Risk Neutral Method Let 'P' be the probability of Price increase, then p x 1050 + (1 - p) x 756 = 840(1.0202) 294 p = 100.97 p = 0.34 Probability of Price increase = 0.34 Probability of Price decrease= 0.66 (0.34 × 150+0.66 ×0) / 1.0202 = 49.99 Conclusion: The value of option under both Models is same.