For a stock index, S = $100. sigma = 30%, r = 5%, Div = 3%,...

For a stock index, S = $100. sigma = 30%, r = 5%, Div = 3%, and T= 3. Let n = 3. Do not use the black scholes model but a binomial model. a. What is the price of a European call option with a strike of $95? b. What is the price of a European put option with a strike of $95? c. Now let S = $95, K = $100, sigma = 30%, r= 3%, and Div = 5%. (You have exchanged values for the stock price and strike price and for the interest rate and dividend yield.) Value both options again. What do you notice? Demonstrate analytically that this is not a coincidence?

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jeff jeffy answered 1 year ago

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