Compute the price of an American call option on the same ZCB of the previous three questions. The option has expiration t=6 and strike=80.
Questions 1-6 should be answered by building an n=10-period binomial model for the short-rate, ri,j. The lattice parameters are: r0,0=5%, u=1.1, d=0.9 and q=1−q=1/2.
face value is 100 and the ZCB expires at t= 10.
Solution. 1. Calculation of price of zero coupon bond. Maturity... View the full answer
- The question asks about the price of the american call option not the price of the zero-coupon bond, could you show me how to do that instead?
- Jul 20, 2016 at 11:40am