Construct lattice to determine value of european call option

Reference no: EM132043688

Question: 1. Construct a lattice to determine the value of a European call option for a stock that has a current spot market price of $55, an upward (or downward) price movement each period of 1.0125 (or .9875), a strike price you select between $52.00 and $57.00 but not equal to $55, and 10 periods to expiration. Assume the periodic risk free interest rate is 0.075%.

2. Using the assumptions from question 5, use a lattice to calculate the value of a 10-period American call option for the stock if the stock pays a $1.00 dividend in one of the periods (you select which one) between 3 and 10.

Reference no: EM132043688

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