Call option on the futures contracts with strike price

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Reference no: EM13928023

A futures is currently at $75. The risk free interest rate is 6.5% p.a. compounded monthly. The volatility of the futures price is 30% p.a. continuously compounded. Using binomial option pricing model, what is the value of 6-month American call option on the futures contracts with strike price of $50? You may assume there are 2 time steps of 3 months each. In providing your answer be sure to include a diagram of the binomial tree with all nodes carefully labeled. Take into consideration different compounding. Please do manually and show all the steps and calculations

Reference no: EM13928023

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