2. Construct a binomial lattice that gives the price of a 5-month American put option.

Problem 3 (20 points) We want to price options using the binomial lattice. The current stock price is 105 and the strike price is 100. Assume that the stock up-trend rate is u = 1.1 with probability p = 0.4 and the down-trend rate is d = 0.9 with probability 1- p=0.6. The annual risk-free rate is r=0.01. Assume that the length of a period is one month. 1. Construct a binomial lattice that gives the price of a 5-month European call option