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American put option

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Reference no: EM131492789

A put option on a stock with three months to maturity has the exercise price of $60. The stock is currently traded at $59 per share and a volatility of 30% per annum. The continuously compounded risk free rate is 3% per annum.

a. Using one month steps, what would be the price of the option if it is a European put option?

b. What is the price of the option if it is an American put option which could be exercised early? When is it likely to be exercised?

Reference no: EM131492789

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