Question

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 option with a strike of $95?
b. What is the price of a European put option with a strike of $95?
c. Now let S = $95, K = $100, σ = 30%, r = 3%, and δ = 5%. (You have exchanged values for the stock price and strike price and for the interest rate and dividend yield.) Value both options again. What do you notice?


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  • CreatedAugust 12, 2015
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