(a) Consider a 1-year American put option on a non-dividend paying stock when the stock price is $100, the strike price is $100, and the risk-free interest rate is 10% per annum. Calculate the value of the option using a two-step binomial tree with u = 1.1 and d = 1/u for each period. 3

(b) For the above stock model, calculate the value of the annual volatility in the Cox-Ross-Rubinstein model.

(c) [An Asian put option has a payoff max(K Save, 0) where Save is the average value of the stock over time, i.e. S0+S1+S2 3 . Calculate the value of an Asian option on the above stock (there is no possibility of early exercise)