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Interest rates are expressed as annualized rates for the term specified. Report your interest rate answers as fractional numbers like 0.11 for 11% per year.
Q- Consider an American Call and an American Put option on a stock trading at a price of A1. The exercise price of either option is A2 and the time to maturity is A3 months.
The stock's volatility (sigma) is A4 per annum, and the risk-free interest rate is A5 percent per annum, continuously compounded. Use a five step binomial model to find the current fair values of the call and put options.
Write the current fair value of the American Call
Write the current fair value of the American Put
A1=48.94
A2=46.94
A3=18.38
A4=0.8094
A5=6.188
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