Consider the non-dividend paying asset with a current value of 100 kr that is described by the
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Question:
Consider the non-dividend paying asset with a current value of 100 kr that is described by the 3-step Binomial model depicted below. Assume that the continuously compounded risk free interest rate is 15% per annum for all maturities. Consider a put option on this asset that matures in 9 months with a strike price of 80 kr. In the questions below clearly describe your calculations and keep at least 4 decimals in all your calculations.
a) Calculate today's value of the option assuming that it is of European type.
b) Calculate today's value of the option assuming that it is of American type.
c) Calculate today's time value of the American option.
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