# Question: Consider a one period binomial model with h 1 where

Consider a one-period binomial model with h = 1, where S = $100, r = 0.08, σ = 30%, and δ = 0. Compute American put option prices for K = $100, $110,$120, and $130.

a. At which strike(s) does early exercise occur?

b. Use put-call parity to explain why early exercise does not occur at the other strikes.

c. Use put-call parity to explain why early exercise is sure to occur for all strikes greater than that in your answer to (a).

a. At which strike(s) does early exercise occur?

b. Use put-call parity to explain why early exercise does not occur at the other strikes.

c. Use put-call parity to explain why early exercise is sure to occur for all strikes greater than that in your answer to (a).

## Answer to relevant Questions

Repeat Problem 11.4, only set δ = 0.08. What is the lowest strike price at which early exercise will occur? What condition related to put-call parity is satisfied at this strike price? Use a spreadsheet to verify the option prices in Examples 12.1 and 12.2. Assume r = 8%, σ = 30%, δ = 0. In doing the following calculations, use a stock price range of $60-$140, stock price increments of $5, and two different times to expiration: 1 year and 1 day. Consider purchasing a ...Let S = $120, K = $100, σ = 30%, r = 0, and δ = 0.08. a. Compute the Black-Scholes call price for 1 year to maturity and for a variety of very long times to maturity. What happens to the price as T →∞? b. Set r = ...Repeat Problem 13.10 for a 365-day 40-strike put.Post your question