Problemconsider a three-period t 01 2 3 binomial option, Ask an Expert

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Problem:

Consider a three-period ( t = 0,1, 2, 3 ) binomial option pricing model. There are 3-period put options on the stock. The values of the underlying variables are S = $50, n = 3, K = $48, u =1.1, d = 0.9, r =1.02

Required:

Question 1: What is the risk-neutral probability that a put option will be in-the-money on maturity date?

Question 2: What is the price of a European put option today?

Question 3: What is the price of an American put option today?

Question 4: What is the dollar value of premature exercise for the American put option?

Note: Please show how you came up with the solution.

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Category:- Basic Finance
Reference No.:- M91163239

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