Hi All,
I was wondering what the best approach would be for valuing a call option that is issued today, expires in 3 years from today but cannot be exercised until at least 2 years from today. To be clear, in can be exercised at anytime after 2 years from being issued.
We're assuming the stock doesn't pay a dividend.
Would a Binomial tree be best or would BSM be a close enough to be a proxy?
If the Binomial tree, how would you set it up? i.e would you assume it's exercisable at only years 2 and 3 so simplicity? or set it up for daily movements after 2 years to expiry?
Thanks
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