As an analyst at Bank of America Merrill Lynch, you are evaluating an European put futures option using two step binomial model. A futures price is currently $70. it is known that over each of the next tow three-month periods it will either rise by 10% or fall by 10%. The risk-free interest rate is 8% per annum. You want to answer the following two quesitons: 

1) What is the value of the six-month European put option on futures with a strike price of 70 and 2) If the put were American, what would be the value of the six-month put option on the futures with a strike price of 70?

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To calculate the value of the sixmonth European put option on futures using the twostep binomial mod... View the full answer