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Math economics: Binomial lattice parameters, put option, strike price

by | Mar 2, 2022 | Mathematics | 0 comments

by | Mar 2, 2022 | Mathematics | 0 comments

Math economics: Binomial lattice parameters, put option, strike price

Consider the value of an European put option with strike price $110 and expiration date of 6 months. The underlying stock has current price $100, binomial lattice parameters for a period of 1 month of u = 1.04 and d = 1/u. The risk free interest rate is 12% per year, compounded monthly.

a. Show calculations of d, R and q below.

b. Without using a spreadsheet, give the formula for Pdddddd below and its numerical value.

c. Determine the current value of the put option using a spreadsheet (excel). Circle your answer for the value of the put option and write it here:

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