Estimate the delta of the option from tree

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a. Use a three-time-step tree to value a 9-month American call option on wheat futures. The current futures price is 400 cents, the strike price is 420 cents, the risk-free rate is 6%, and the volatility is 35% per annum. Estimate the delta of the option from your tree.

b. A 3-month American call option on a stock has a strike price of $20. The stock price is $20, the risk-free rate is 3% per annum, and the volatility is 25% per annum. A dividend of $2 is expected in 1.5 months. Use a three-step binomial tree to calculate the option price.

Reference no: EM131239456

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