a. Using a 2-step binomial tree with u = 1.20, d = 0.90, r = 0.10...

Transcribed Image Text:

a. Using a 2-step binomial tree with u = 1.20, d = 0.90, r = 0.10 per step, compare = the prices of a European call and an American call both with X = 120 when So 120. b. Using a 2-step binomial tree with u = 1.10, d = 0.95, r = 0.02 per step, compute the prices of a European call and an American call both with X = 14 when So = 12, assuming that a dividend of 3 liras is paid at time 1. a. Using a 2-step binomial tree with u = 1.20, d = 0.90, r = 0.10 per step, compare = the prices of a European call and an American call both with X = 120 when So 120. b. Using a 2-step binomial tree with u = 1.10, d = 0.95, r = 0.02 per step, compute the prices of a European call and an American call both with X = 14 when So = 12, assuming that a dividend of 3 liras is paid at time 1.

Answer rating: 100% (QA)

a To compare the prices of a European call and an American call we need to calculate the option prices at each node of the binomial tree Using a 2step ... View the full answer