Compute the fair value of an American call option with strikeK

=

110

K=110

and maturityn

=

10

n=10

periods where the option is written on a futures contract that expires after

15 periods. The futures contract is on the same underlying security of the previous

questions.

should be answered by building a 15-period binomial model whose parameters should be calibrated to a Black-Scholes geometric Brownian motion model with:T

=

.

25

T=.25

years,S

0

=

100

S0

=100

,r

=

2

%

r=2%

,

=

30

%

=30%

and a dividend yield ofc

=

1

%

.

c=1%.

Hint

Your binomial model should use a value ofu

=

1.0395...

u=1.0395...

. (This has been rounded to four decimal places but you should not do any rounding in your spreadsheet calculations.)