Q2

Q2. Given the following information, please estimate IBMs 4-month American call and put option prices based on a 4-period binomial option price model. Assume the length of the interval for each step is a month. (Please calculate p, u, and d based on IBMs daily price from Nov. 11, 2015 through Nov. 11, 2016.

(Annualized variance = daily variance*252.)

The risk-free rate with quarterly compounding: 1%

Current IBM price: use the price on Mar. 11, 2015

Moneyness: At-The-Money Options

A dividend of $2 will be made at the end of month 4.

Given the following information, please estimate IBM's 4-month American call and put option prices based on a 4-period binomial option price model. Assume the length of the interval for each step is a month. (Please calculate p, u. and d based on IBM's daily price from Nov. 11, 2015 through Nov. 11, 2016. (Annualized variance = daily variance*252.) The risk-free rate with quarterly compounding: 1% Current IBM price: use the price on Mar. 11, 2015 Moneyness; At-The-Money Options A dividend of $2 will be made at the end of month 4. Given the following information, please estimate IBM's 4-month American call and put option prices based on a 4-period binomial option price model. Assume the length of the interval for each step is a month. (Please calculate p, u. and d based on IBM's daily price from Nov. 11, 2015 through Nov. 11, 2016. (Annualized variance = daily variance*252.) The risk-free rate with quarterly compounding: 1% Current IBM price: use the price on Mar. 11, 2015 Moneyness; At-The-Money Options A dividend of $2 will be made at the end of month 4