Modify your formulas from (1) to compute the price at time 0 of an American put option with the same contract specications in the binomial model. Report the price of the American put option under the binomial model.

Compute x(1); y(1) i.e., the number of shares of the stock and risk-free asset needed at time 0 to replicate the American option over the rst time-step.

Identify which nodes (if any) prior to the terminal date T = 1 are optimal exercise points. In other words, identify the points on the binomial tree, if any, where early exercise is optimal. It is enough to simply highlight these nodes on a visual representation of the stock or option price binomial tree.

Report the early exercise premium for the American put option, i.e., compute PA PE. This is the cash value associated with the ability to exercise early.

Posted Date: 3/9/2013 1:05:03 AM | Location : United States

Ask an Expert

Related Discussions:- Option price binomial tree, Assignment Help, Ask Question on Option price binomial tree, Get Answer, Expert's Help, Option price binomial tree Discussions

Write discussion on Option price binomial tree
Your posts are moderated

Write your message here..

Related Questions

What is the p-value, Use the information given below to find the P-value. ... Use the information given below to find the P-value. Also, use a 0.05 significance level and state the conclusion about the null hypothesis (reject the null hypothesis or fail to

Modelling and prediction of performance, case study in heat power engineeri... case study in heat power engineering

Principles of data analysis, For the data analysis project, you will addres... For the data analysis project, you will address some questions that interest you with the statistical methodology we are learning in class.   You choose the questions; you decide h

Maths assignment, Need help on my maths assignment Need help on my maths assignment

Advantages of mode, Advantages By definition, mode is the most typic... Advantages By definition, mode is the most typical or representative value of a distribution. Hence, when we talk of modal wage, modal size of shoe or modal size of family i

Double Exponential Smoothing, whats mean by Double Exponential Smoothing whats mean by Double Exponential Smoothing

Statistical inquiry, Main stages of Statistical Inquiry The following a... Main stages of Statistical Inquiry The following are the various stages of a statistical inquiry (1)   Planning the Inquiry: First of all we have to assess the problem und

Bernoulli trial, Statistician is searching the \home ground" effect and is ... Statistician is searching the \home ground" effect and is studying 20 football games, of which 14 were won by the home team and 6 by the visitors. Therefore the game is a Bernoulli

Estimate the standard deviation of the process, Estimate the standard devia... Estimate the standard deviation of the process: Draw the X (bar) and R charts for the data given and give your comments about the process under study. Estimate the standard de

Simple linear regression, Simple Linear Regression   While correlati... Simple Linear Regression   While correlation analysis determines the degree to which the variables are related, regression analysis develops the relationship between the var