Question

This is two period American put option model. Underlying asset price at current time is $100 and u(up factor in the binomial tree) is 1.05 and d(down factor in the binomial tree) is 0.95. Exercise price is $105 and risk free rate is 0.02%

what is the put option price at current time?

what is the time value of put option and current time?

is the put option in-the-money, at-the-money, or out-of-the money?

Answer 1

1.

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

2.

Thus,

Therefore,

3.

	Put option
At the money	Exercise Price = Market Price
In the money	Exercise Price > Market Price
Out the money	Exercise Price < Market Price

Exercise price of Put is greater than current stock price thus, Put option is in the money(ITM)

Hope this will help, please do comment if you need any further explanation. Your feedback would be appreciated.