Suppose S = $100, r = 8% per annum (continuously compounded), t = 1 year, σ = 30% per annum, and δ = 5% per annum. Construct an eight-period binomial tree for the underlying stock using each of the following models
Forward binomial tree
Cox-Ross-Rubinstein binomial tree
Lognormal tree
Using the binomial trees you constructed, please compute the prices an American put struck at K=$95 and has 1 year to expiration. Please highlight early exercise locations on your trees.
Binomial tree by Cox-Ross-Rubinstein
Suppose S = $100, r = 8% per annum (continuously compounded), t = 1 year, σ...