Consider both a 12-month American and a 12-month European put option on a stock with So...
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Consider both a 12-month American and a 12-month European put option on a stock with So = $100, K = $90, and = 0.3. The risk-free rate is 5%, continuously compounded, for the entire 12-month period. (a) (5 points) Compute the price of the European put using the CRR model and a three-step binomial tree. Make sure to show your work. (b) (5 points) Compute the price of the American put using the CRR model and a three-step binomial tree. Make sure to show your work and indicate any nodes on your tree where the option is exercised early. Consider both a 12-month American and a 12-month European put option on a stock with So = $100, K = $90, and = 0.3. The risk-free rate is 5%, continuously compounded, for the entire 12-month period. (a) (5 points) Compute the price of the European put using the CRR model and a three-step binomial tree. Make sure to show your work. (b) (5 points) Compute the price of the American put using the CRR model and a three-step binomial tree. Make sure to show your work and indicate any nodes on your tree where the option is exercised early.
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a European Put Option Pricing with CRR Model and Binomial Tree 1 Setting Up the Tree Spot Price So 100 Strike Price K 90 Volatility 03 RiskFree Rate r ... View the full answer
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