QUIZ HINT..should be answered by building a 15-period binomial model whose parameters should be calibrated to a Black - Scholes geometric Brownian motion model with:T = .25

T=.25years,S_{0} = 100

So

=100,r = 2%

r=2%,sigma = 30%

=30%

and a dividend yield ofc = 1%.

c=1%.

Hint

Your binomial model should use a value ofu = 1.0395...

u=1.0395.... (This has been rounded to four decimal places but you should not do any rounding in your spreadsheet calculations.)

Submission Guidelines

Round all your answers to 2 decimal places. So if you compute a price of 12.9876 you should submit an answer of 12.99.

questions

1) Compute the price of an American call option with strikeK=110

K=110and maturityT=.25

T=.25years.

ans:

2) Compute the price of an American put option with strikeK = 110

K=110and maturityT = .25

T=.25years.

ans:

3) if your answer to Question 3 is "Yes", when is the earliest period at which itmight

be optimal to early exercise? (If your answer to Question 3 is "No", then you should

submit an answer of 15 since exercising after 15 periods is not an early exercise.)

ans:

4) Compute the fair value of an American call option with strikeK = 110

K=110and maturity

n = 10

n=10periods where the option is written on a futures contract that expires after

15 periods. The futures contract is on the same underlying security of the previous

questions.

ans:

5)What is the earliest time period in which youmightwant to exercise the American

futures option of Question 6?

ans:

6)Compute the fair value of achooseroption which expires aftern = 10

n=10periods. At

expiration the owner of the chooser gets to choose (at no cost) a European call option

or a European put option. The call and put each have strikeK = 100

K=100and they mature

5 periods later, i.e. atn = 15

n=15.

ans:

please give me all answers