Question
Spot price 100 Strike price 85 Continuously compounded Risk-free rate 2% Continuous Dividend yield 3% Time to maturity 1 year Annualized volatility 0.3 Construct a
Spot price
100
Strike price
85
Continuously compounded Risk-free rate
2%
Continuous Dividend yield
3%
Time to maturity
1 year
Annualized volatility
0.3
Construct a 2-step binomial tree for a Europeancalloption.
If the option is American style, in which node (u or d) do you want to exercise before expiration?node u/node d
What is the American call option premium?
(Leave 2 d.p. for the answer)
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Analysis for Financial Management
Authors: Robert c. Higgins
8th edition
73041807, 73041803, 978-0073041803
