Question

Let S = $100, K = $95, r = 8% (continuously compounded), σ = 30%, δ = 0,
T = 1 year, and n = 3.
a. Verify that the binomial option price for an American call option is $18.283.
Verify that there is never early exercise; hence, a European call would have the same price.
b. Show that the binomial option price for a European put option is $5.979.
Verify that put-call parity is satisfied.
c. Verify that the price of an American put is $6.678.


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  • CreatedAugust 12, 2015
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