Assume that the price S of a risky asset follows a binomial model with S(0) = $100, u = 10% and d =
Assume that the price S of a risky asset follows a binomial model with S(0) =
$100, u = 10% and d = -10%. The underlying asset pays a dividend of $5 on the odd times, i.e., 1; 3; 5…,
and only if the price is strictly higher than $95. In this market, the risk-free rate is 0% (zero).
You are called to price a European call with strike price K = 87 and expiry date N = 3 with the additional
restriction that during the life of the call the stock price has not exceeded the value of $110.
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