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Compute the 1-year value of a european call

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Consider a 3-period Cox-Ross-Rubinstein binomial model. The initial price of the risky asset is R100. The risk-free rate of interest with continuous compounding is 6% per annum. Over the next three 4-month periods, the asset is expected to go up by 8% or go down by 7% in each period. Take the exercise price as K = 103.

(a) Compute the 1-year value of a European call.

(b) Compute the 1-year value of a European put.

(c) Check whether the put-call parity is valid or not?

Reference no: EM132596529

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