Which is the correct answer?
The correct answer depends on how you address your grandfather.
The general rule is that all proper nouns should be written with a capital letter. Proper nouns refer to names of things. e.g. Clarice, Keming Primary School, Sony
Common nouns are names of things in general. e.g. woman, school, television. These words do not come with capital letters.
Therefore, Option 1 is correct because “grandfather” is simply used as a common noun that refers to the person as your father’s father because of the word “my” before it.
Option 2 is therefore wrong.
Option 3 is also wrong. Without the word “my”, “grandfather” becomes a proper noun rather than a common noun. Given that all proper nouns should come with a capital letter, Option 4 is correct.
In short, if you call your grandfather “Grandfather”, it must come with a capital letter. If you have the word “my” before “grandfather”, it must come with a lower case “g”.