Question: Let S = $100, K = $95, r = 8% (continuously compounded), = 30%, = 0, T =1year, and n=3. Verify that the binomial option

  1. Let S = $100, K = $95, r = 8% (continuously compounded), = 30%, = 0, T =1year, and n=3. Verify that the binomial option price for an American call option is $18.283. Verify that there is never early exercise; hence, a European call would have the same price.Show that the binomial option price for a European put option is $5.979. Verify that put-call parity is satisfied. Verify that the price of an American put is $6.678. Do so in an excel file showing formulas used.

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