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Consider an American put option on a non-dividend paying stock where the stock price is $50, the strike price is $50, the risk-free rate is
Consider an American put option on a non-dividend paying stock where the stock price is $50, the strike price is $50, the risk-free rate is 4% (continuous), the volatility is 30% per annum, and the time to maturity is six months.
a) Calculate u, d, and probability p for a two-step tree
b) Price the option using the two-step tree
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