Consider a three-year Treasury bond with a 10 percent coupon and $100 par value. Using the data on US Treasury zero-coupon yields and volatilities during the last two years, and the Black-Derman-Toy Model, compute the price of a two-year European call option and a two-year European put option on the Treasury bond, with a $95 strike price for both options. Verify the pricing of the options using put-call parity.

Answer rating: 100% (QA)

Three year Interest Rate Tree Three year Zero Price Tree 025 09975 022 09955 012 022 099... View the full answer