Improve estimate of the price of the american option

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Reference no: EM131239491

A 1-year American call option on silver futures has an exercise price of $9.00. The current futures price is $8.50, the risk-free rate of interest is 12% per annum, and the volatility of the futures price is 25% per annum.

Use the DerivaGem software with four 3-month time steps to estimate the value of the option.

Display the tree and verify that the option prices at the final and penultimate nodes are correct.

Use DerivaGem to value the European version of the option. Use the control variate technique to improve your estimate of the price of the American option.

Reference no: EM131239491

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