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Given the following, answer the questions that follow. S= $100, K = $95, r = 8% (and continuously compounded), ? = 30%, ?= 0, T
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 satis?ed. c. Confirm that the price of an American put is $6.678.
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