Exercise 1 An option has the following features: S0 = 60, K (strike price) =64, u=1.2, d= 0.8333, T=5 years, r=5%.

Construct a binomial tree model for a European call option with the given SO, K, u, d T and r below. Calculate option delta at each point on the tree and discuss the interval for the possible delta values.

Construct a binomial tree model for a European put option with the given SO, K, u, d T and r below. Calculate option delta at each point on the tree and discuss the interval for the possible delta values.

Calculate European put option price with binomial formula for different maturities (T). Discuss how option prices change as the maturity (number of periods) increases.

Construct another binomial tree model for American put option and compare the price of American option with the price of European option. Can the binomial formula be applied here for an American option?