Bermudan Options. Using the CRR model with (A_{0}=100, r=4 %), (sigma=10 %, T=0.5, N=6). (a) Using backward
Question:
Bermudan Options. Using the CRR model with \(A_{0}=100, r=4 \%\), \(\sigma=10 \%, T=0.5, N=6\).
(a) Using backward induction, calculate the price of a 6-month ( \(T=\) \(0.5)\) Bermudan put option with \(K=100\) and monthly exercise dates.
(b) Calculate the prices of \(1 \mathrm{~m}, 2 \mathrm{~m}, \ldots, 6 \mathrm{~m}\) European put options with \(K=100\) (six prices).
(c) Is the Bermudan put the sum of the above six European puts? Is it the maximum of the above six European puts?
(d) Using backward induction, calculate the price of a 6-month Bermudan call option with \(K=100\) and monthly exercise dates and compare it to the price of a 6-month European call option with \(K=100\).
Step by Step Answer:
a Using backward induction under the CRR model t6m P...View the full answer
Mathematical Techniques In Finance An Introduction Wiley Finance
ISBN: 9781119838401
1st Edition
Authors: Amir Sadr
