Answer to Question #294277 in Finance for Rahul Sigh

Question

Background: please start by building an n=10-period binomial model for the short-rate, r_i,j. The lattice parameters are: r_0,0 = 5% u=1.1, d=0.9 and q = 1- q = 1/2.

Compute the price of an American call option on the same ZCB of the previous three questions. The option has expiration t = 6

t=6 and strike = 80.

Answer 1

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