Financial Risk Management

Assignment on Binomial Tree

Instructor: Anjali Chaudhary
Consider a European call option on a non-dividend paying stock where the stock
price is $40, the strike price is $40, the risk-free rate is 4% per annum, the volatility
is 30% per annum, and the time to maturity is six months.
a) Calculate the value of the option using a 12-step binomial tree.
b) Calculate the value of the American call option with the same above data
using the 12-step binomial tree.
Note: You can use different software available like MATLAB, DerivaGem or Excel.
Dont forget to submit the hard-copy along with the soft-copy of the used software.
(You can email the soft-copy)

Deadline: 23rd February, 2015 before 10:30 am.

Note: This is an individual assignment. No form of plagiarism will be

accepted.