Question: Assuming a binomial tree of 150 steps, 1 year to maturity, and a domestic risk-free rate of 5% per annum: Assume the current stock price

Assuming a binomial tree of 150 steps, 1 year to maturity, and a domestic risk-free rate of 5% per annum:

  1. Assume the current stock price is $100 and the stock has a per annum volatility of 30%. The stock pays no dividends. What is the price of an American call option on this stock with a strike price of $110?

  2. Assume the current stock price is $100 and the stock has a per annum volatility of 30%. The stock pays an annual dividend yield of 2%. What is the price of an American put option on this stock with a strike price of $80?

  3. Let the current exchange rate be 1.5600 and its per annum volatility be 10%. Assume that the foreign risk-free rate is 3% per annum. What is the price of an American put on the foreign currency with a strike price of $1.5400?


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