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Options Pricing – Pricing Put Options – Option pricing spreadsheet – Binomial trees

Pricing European Put Option

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.

ColumnABCD
RowSTCTT-1?tT-2?t
147.6190.000
246.2910.0000.300
345.0000.0000.6140.592
443.7451.2551.2101.218
542.5252.4751.8501.522

Figure 85: Spreadsheet for European put option example

The price of the put option is 0.592.