European Put
The procedure to be followed for pricing a European put option is the same except that in Step 2 the payoffs calculated in column B will be CT =Max(K- ST,0).
For a put option with a strike and initial price of underlying of 45 the following would be the output for n=2. All other parameters are the same as for the call.
Column | A | B | C | D |
Row | ST | CT | T-1Δt | T-2Δt |
1 | 47.619 | – | – | 0.000 |
2 | 46.291 | – | 0.000 | 0.300 |
3 | 45.000 | 0.000 | 0.614 | 0.592 |
4 | 43.745 | 1.255 | 1.210 | 1.218 |
5 | 42.525 | 2.475 | 1.850 | 1.522 |
Figure 85: Spreadsheet for European put option example
The price of the put option is 0.592.
Comments are closed.