Question: S(0) = 77, K = 75, U = 0.05, D = -0.03, R = 0.01 using a binomial model with N = 13 time steps.

S(0) = 77, K = 75, U = 0.05, D = -0.03, R = 0.01 using a binomial model with N = 13 time steps.

(a) Price a European put option.

(b) Price an American put option. Compare the price to the European put option.

(c)Price a European call option.

(d) Price an American call option. Compare the price to the European call option.

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SOLUTION a To price a European put option we can use the binomial model with N 13 time steps Lets denote the stock price at time step i as Si where i ranges from 0 to 13 Given the following parameters ... View full answer

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