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Calculate the value of the month european put option

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Reference no: EM133070290

The market price of ABC stock is currently $40. It is known that at the end of two months it will either be $44 or $36. The risk free interest rate is 10% per annum with continuous compounding

a) Use a one step binomial tree to calculate the value of the 2 month European put option on the ABD stock with a strike price of $42 use a non arbitrage approach (you need to show how to set up a risk less portfolio

b) Use the same step binomial tree and your results from (a) to determine the price of a 22 month American put option on the ABC stock with a strike price of $42

Reference no: EM133070290

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