A stock index is currently valued at $50, and its return has a volatility of 30% per year. The continuously compounded risk-free interest rate is 2.5% per year.

a) Use a binomial model with two steps to describe the evolution of stock prices for the next two months. Specify the stock price at each node in the binomial three above. b) Determine the price of a European call option with two months maturity and a strike price of $55.

c) What is the delta at node B for this call option? d) Determine the price of an American put option with the same strike price and time to maturity. And whats the put options delta at node A?

B C D E F B C D E F