CSR Limited (CSR) is an Australian company that primarily produces building products (e.g., concrete, bricks, etc.). It
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Question:
(a) Construct a six-step binomial pricing tree for the European put and find the premium.
(b) Construct a six-step binomial pricing tree for the American put and find the premium.
(c) Now say the European put is a down-and-out barrier option with barrier at the asset price $1.75. Construct a six-step binomial pricing tree for this barrier European put and find the premium.
(d) Now say the American put is a down-and-out barrier option with barrier at the asset price $1.75. Construct a six-step binomial pricing tree for this barrier American put and find the premium.
(e) Discuss the four premium values calculated in parts (a)–(d). In particular, discuss why some premiums are higher than others and why some are equal.
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