American call and put options on futures on index of stocks

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Reference no: EM132056744

American call and put options on futures on an index of stocks with a strike price of 23.2 dollars for both the options. The current index value is 25.2 dollars, the risk-free rate of interest is 7 percent per annum, continuously compounded, and the index’s volatility is 0.38 per annum. The index yields a dividend of $3 at 4.5 months (the ex-dividend date) from now. Use a five-step binomial model to calculate the current fair call and put option prices and find the following:

a) Current fair call option price.

b) Current fair put option price.

Reference no: EM132056744

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