PPT Slide

For American option, early exercise is taken into account

Example

5-month American put option: S = 50, X = 50,

r = 10% per annum, s = 40% per annum,

Take N = 5 so that Dt = 1/12 = 0.0833.

stock price at node A = 50 ? 1.1224 ? 0.89093 = 39.69

(i = 4, j = 1)