In the CRR model, let A 0 100 , r 4 , 12 , T 1 A 0 100 , r 4 , 12 , T 1 , and N 12 N 12 (a) Calculate the price of a 1 year call option with K 100 K 100 (b) Calculate the price of the same option using the BSM call formula (c) Calculate the price of a 1 year European style option with the following...

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In the CRR model, let A 0 = 100 , r = 4 % , =

Question:

In the CRR model, let $A_{0} = 100, r = 4 %, σ = 12 %, T = 1$ , and $N = 12$ .

(a) Calculate the price of a 1-year call option with $K = 100$ .

(b) Calculate the price of the same option using the BSM call formula.

(c) Calculate the price of a 1-year European-style option with the following exotic payoff at expiration: $C (T) = max (0, A^{2} (T) - 10, 000)$ .