1. Consider a European put option in a two period binomial model. The payoff of the put is [max(70-S;0)]. The current stock price is 50, the stock price in each period can increase or decrease by a factor of 2 (so u=2, d=1/2), whereas risk free rate is r=25%. What is the price and how would you hedge the option? Please explain how you would use arbitrage if the price is 2 $ lower or 2$ higher on the market (you can buy or sell options at this price) then the one calculated using the formula or replicating portfolio argument.

With all the steps please.