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

*in*Options Pricing

## 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 C** _{T}** =Max(K- S

_{T},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 | S_{T} | C_{T} | T-1?t | T-2?t |

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.

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