Consider a one period binomial model with h 1 where
Consider a one-period binomial model with h = 1, where S = $100, r = 0, σ = 30%, and δ = 0.08. Compute American call option prices for K = $70, $80, $90, and $100.
a. At which strike(s) does early exercise occur?
b. Use put-call parity to explain why early exercise does not occur at the higher strikes.
c. Use put-call parity to explain why early exercise is sure to occur for all lower strikes than that in your answer to (a).
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