xilige

I thought I just explained this...

But anyway, there are implicit P(U) and P(D). In fact, you can probably solve for these using 100 = (150*P(U) + 50*P(D))/1.1 . The option price of 100 already takes the 10% discount rate into consideration, since implicitly, P(U) > P(D). Therefore, the expected payoff > 100.

But forget all that. Just consider this statement:

"In all scenarios, the price of the stock and option are equivalent. Therefore, both must have the same price. "