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The current value of S&P500 index is $2,900 where it pays the continuous dividend with yield of 1%. Assume that the risk-free rate is 3%
The current value of S&P500 index is $2,900 where it pays the continuous dividend with yield of 1%. Assume that the risk-free rate is 3% in continuously compounded annual terms and the annualized return volatility of the S&P500 index return is 18%. Construct a 2-step binomial tree to price a 6-months to maturity American put option written on the S&P500 index with the strike price of $2,900. Express your answer to the nearest cents (e.g., write 4.85 if your answer is $4.8481).
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