Consider a 100-step binomial model where the price of a non-dividend-paying asset at time n, Sn is modelled as Sn = SoZ1 Z2... Zn where Z are i.i.d. random variables with u = 1.05 w. p. p Zi = d = 0.95 w. p. 1-p. Suppose So = 1 and the continuously-compounded rate of interest per unit time step is r = 0.0001. Since r is expressed this way, you do not have to worry about the actual time unit each time step represents - only the number of time steps. (KST)+ if Sn < L for all 0 n T payoff = 0 otherwise.