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A European binary put option has a payoff of $1 when the option is in the money (K >= S T ) and a payoff
A Europeanbinaryput option has a payoff of $1 when the option is in the money (K >= ST) and a payoff of $0 when the option is out of the money (K < ST).Using the following data, find the price of the binary put (recall that you can use risk-neutral probabilities to price any type of option, not just standard calls and puts).Use a two-step tree.
K
$21
M (years)
1
S0
$20
r
3.0%
u
1.2
d
0.8
Enter the price using 3 decimal places.
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