A stock price is currently selling at $100. Over each of the next two 6-month periods it is expected to go up by 10% or down by 10%. The risk-free interest rate for each of these six months is 8%.

Using a two-step tree, compute the parameters K and of the payoff function f(S_T,K) = (S_T-K)²that dene the financial derivative d with initial cost d₀= $3:5 at time 0. If the derivative is American-style, should it be exercised early?