What is the value of an american call option

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Suppose that we have a firm whose current value is Kshs 1000 and that (given a multiplicative stochastic process) its value could go up by 12.75% or down by 11.31% and a standard deviation of 12% per annum and the risk free rate is 8%. The equity of this firm is subordinated to debt that has a face value of Kshs. 800 maturing in three years and that pays no coupon. What is the value of an American call option written on the equity if its exercise price is Kshs. 400 and its maturity is three years?

Reference no: EM132616411

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