Consider a 3-month European put option on a non-dividend paying stock that is currently priced So =
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Question:
- Consider a 3-month European put option on a non-dividend paying stock that is currently priced So = $16 with volatility o = 30% and risk-free rate r = 5.3% and a strike price
- K = 817.
- (a) Using a three-step binomial tree (N = 3), construct the underlying price tree. Show all work. (Report everything to 4 decimal places, except prices, report to 3 decimal places.)
- (b) What is the value of the European put option? (c) Is it possible for the American put option to be $0.10 less than the European put option in this example.
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