Find the price of a 3 month European call option with K 100, r 0 05, S(0) 100, u 1 1 and d 0 9 in the binomial model, if a dividend amount of D $5 is to be paid at time 1 5 months Use the binomial tree with time step t 1 12 years to model the process SG(t) S(t) er( t)D for t ...

As usual we assume that 005 is the annual interest rate In the following graph we represent the tree for the stock S and for its value S G net of divi ...

Find the price of a 3-month European call option with K = 100, r = 0.05, S(0)

Question:

Find the price of a 3-month European call option with K = 100, r = 0.05, S(0) = 100, u = 1.1 and d = 0.9 in the binomial model, if a amount of D = $5 is to be paid at time τ = 1.5 months. Use the binomial tree with time step Δt = 1=12 years to model the process SG(t) = S(t) − e−r(τ −t)D for t < τ.
Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...