Question: This is the problem i am working on: Given the following, answer the questions that follow. S= $100, K = $95, r = 8% (and
This is the problem i am working on:
Given the following, answer the questions that follow.
S= $100, K = $95, r = 8% (and continuously compounded), = 30%, = 0, T = 1 year, and n= 3.
a. Confirm that the binomial option price for an American call option is $18.283. (Hint: There is no early exercise. Therefore, a European call would have the same price.)
b. Demonstrate that the binomial option price for a European put option is $5.979. Verify that put-call parity is satised.
c. Confirm that the price of an American put is $6.678.
I have gotten the solutions off the site and understand majority but am not getting how this table was created nor the values with in it. Can you help explain this table and the values?
| American Call Value | 3 | 2 | 1 | 0 | |
| 0 | 87.14179 | 56.64406 | 33.14932 | 18.28255 | |
| 1 | 33.81474 | 15.04033 | 6.68973 | ||
| 2 | 0 | 0 | |||
| 3 | 0 |
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