American Option)

The stocks price S is $100

After three months, it either goes up and gets multiplied with the up factor U =

1.163287, or it goes down and gets multiplied with the down factor D = 0.861785

Options mature after T = 0.5 years

Options have a strike price of K = $110

A dollar invested in the money market account grows to $1.012578 after three months

(corresponding to an annual compounded interest rate of 5%)

(a) Set up a stock price tree that can price options maturing at T.

(b) Find the price of a put option.

(c) If the option was American, would it have been exercised early? If so, what is the price

of the American option.

(d) Using PCP, what it the price of an European call option.

can you please solve b and show all calculations