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The price of a three-month future contract on the S&P 500 index is traded at 2355....

The price of a three-month future contract on the S&P 500 index is traded at 2355. Use a 9 step binomial tree model to value an American put on the future contract assuming K=2400, r=1%, s=15%. The price of the American put option is ___________.

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Expert Solution

The price of the American put option using  9 step binomial tree model is $92.0724

T=0.25 years

=15%=0.15

Rf = 1% = 0.01

= $2355

Size of one up move = (0.25/9)= 0.0277 years

Upmove factor U = = e^(0.15*(0.0277)^0.5) = 1.0252

Downmove factor = = 0.9754

jeff jeffy answered 1 year ago
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