Compute The Fair Value Of A Chooser Option Which Expires After N 10 Periods At E

Compute the fair value of a chooser option which expires after n=10 periods. At expiration the owner of the chooser gets to choose (at no cost) a European call option or a European put option. The call and put each have strike K=100 and they mature 5 periods later, i.e. at n=15.

should be answered by building a 15-period binomial model whose parameters should be calibrated to a Black-Scholes geometric Brownian motion model with: T=.25 years, S0=100 , r=2% , σ=30% and a dividend yield of c=1%. Your binomial model should use a value of u=1.0395

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