Reference no: EM133001114
1.An American call with expiry in two time steps has expiry values (2,2)=$5, (2,1)=$1 and (2,0)=$0. For return 1.2 and risk neutral probability ??=0.7, what is the premium of this call?
Group of answer choices
a. $0.6042
b. $1.9931
c. $2.8700
d. $1.7986
2.An American put has underlying asset described by CRR notation ??=10, ??=1.1and ??=0.95. This put has strike $10.50 and expires in two time steps. The return is ??=1.05and the risk-neutral probability is ??=2/3 . At what nodes is the value of this put determined from its exercise value rather than the value calculated from the general pricing formula?
Group of answer choices
a. Nodes (1, 0) and (0, 0).
b. Nodes (0, 0), (1, 0) and (1, 1).
c. Nodes (0, 1) and (1, 0).
d. Node (0, 0).
e. Node (0, 1).
f. Nodes (1, 1) and (0, 0).
g. Node (1, 0).
3.The value of an American put with expiry time ??
Group of answer choices
is always more than an otherwise identical European put.
never depends on the exercise values before time ??
might depend on the exercise values before time ??
is always less than an otherwise identical European put.
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