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Compute the prices of american and european puts

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Reference no: EM132751933

Let S=$300, K=$300, r=10% risk-free interest rate, (continuously compounding), T=3 years, n=3, three-period binomial tree, =6.5%, continuous dividend yield on the stock index, u=1.25, and d=0.7.

Problem a) Construct the binomial tree for the stock index.

Problem b) Compute the prices of American and European calls.

Problem c) Compute the prices of American and European puts by using risk-neutral probability, p*, approach.

Reference no: EM132751933

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