Let S = $100, K = $95, σ = 30%, r = 8%, T = 1, and δ = 0. Let u = 1.3, d = 0.8, and n = 2. Construct the binomial tree for an American put option. At each node provide the premium, ∆ and B.
Answer to relevant QuestionsSuppose S0 = $100, K = $50, r = 7.696% (continuously compounded), δ = 0, and T = 1. a. Suppose that for h = 1, we have u = 1.2 and d = 1.05. What is the binomial option price for a call option that lives one period? Is ...Suppose that the exchange rate is $0.92/=C. Let r$ = 4%, and r=C = 3%, u = 1.2, d = 0.9, T = 0.75, n = 3, and K = $0.85. a. What is the price of a 9-month European call? b. What is the price of a 9-month American call? Repeat the previous problem calculating prices for American options instead of European. What happens? For a stock index, S = $100, σ = 30%, r = 5%, δ = 3%, and T = 3. Let n = 3. a. What is the price of a European call ...Repeat the option price calculation in the previous question for stock prices of $80, $90, $110, $120, and $130, keeping everything else fixed. What happens to the initial put _ as the stock price increases? Compute the prices of European and American calls and puts.
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