Consider a one-period binomial model (a two-state contingent claim model) with the right to sell (a put option), stock price S0 = 100, exercise price K=110, and compound factor 1+r = 1.10, where r is the interest rate. The two possibilities for the stock price at time T are 130 and 80.

1. Discuss the one-period binomial model, highlighting its underlying assumptions.

2. Derive the formula for the delta hedge.

3. Using the data above compute the hedge ratio of this type of contingent claim and the value of the riskless portfolio at time 0.