A stock index is currently 990, the risk free rate is 5 , and the dividend yield on the index is 2 Use a three step tree to value an 18 month American put option with a strike price of 1,000 when the volatility is 20 per annum How much does the option holder gain by being able to exercise early Whe...

The tree is shown below in the figure The value of the option is 8751 It is optim ...

A stock index is currently 990, the risk-free rate is 5%, and the dividend yield on the

Question:

A stock index is currently 990, the risk-free rate is 5%, and the yield on the index is 2%. Use a three-step tree to value an 18-month American put option with a of 1,000 when the volatility is 20% per annum. How much does the option holder gain by being able to exercise early? When is the gain made?
Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity. Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...