I am confused by a particular exercise I am doing right now, I am hopeful that someone can walk me through as to how to solve it. I further hope the question is not considered too basic for this forum.
Build 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%. Compute the fair value of an American call option with strike K=110 and maturity n=10 periods where the option is written on a futures contract that expires after 15 periods. The futures contract is on the same underlying security as described in the previous questions. What is the earliest time period in which you might want to exercise the American?
So what I would normally do to compute the value is to build a lattice and then work backwards in order to see what the value is. Yet the part with "where the option is written on a futures contract that expires after 15 periods", leaves me awfully confused as to what I should be doing as well as what implications that has for the exercise.
Thank you for any feedback!
[at this point I found the solution, big thanks to all the contributors, I deleted the lattices in order not to misguide anyone as they clearly did produce the wrong result]