Repeat Problem 11.1, only assume that = 0.08. What is the greatest strike price at which early exercise will occur? What condition related to put-call parity is satisfied at this strike price?...

Repeat Problem 11.1, only assume that

= 0.08. What is the greatest strike price at which early exercise will occur? What condition related to put-call parity is satisfied at this strike price?

Problem 11.1

Consider a one-period binomial model with
= 1, where

= $100,
= 0,

= 30%, and

= 0.08. Compute American call option prices for

= $70, $80, $90, and $100.

a. At which strike(s) does early exercise occur?

b. Use put-call parity to explain why early exercise does not occur at the higher strikes.

c. Use put-call parity to explain why early exercise is sure to occur for all lower strikes than that in your answer to (a).