Experiment with the number of steps for binomial tree, Ask an Expert

Economics

Parameters
Strike price = $120;
Expiration time = 1 year;
Annual interest rate = 0.05;
Stock volatility = 0.35.
For the initial stock price, S0 = 100.45

Requirements

1. Find the price of the call option by the Black-Scholes formula rounded to the nearest cent.

2. Experiment with the number of steps for the binomial tree model until your numerical result stabilizes to within one cent of the result given by the Black-Scholes formula. How many steps?

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Macroeconomics, Economics

Category:- Macroeconomics
Reference No.:- M9293610

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