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Let S=$40,K=$40,r=8%(continuously compounded),sigma=30%,Delta=0,T=0.5 yearand n=2. a.Construct the binomial tree for the stock.What are u and d? b.Show that the call price is $4.110. c.Compute the

Let S=$40,K=$40,r=8%(continuously compounded),sigma=30%,Delta=0,T=0.5 yearand n=2.

a.Construct the binomial tree for the stock.What are u and d?

b.Show that the call price is $4.110.

c.Compute the prices of American and European puts.

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Question

Let S=$40,K=$40,r=8%(continuously compounded),sigma=30%,Delta=0,T=0.5 yearand n=2. a.Construct the binomial tree for the stock.What are u and d? b.Show that the call price is $4.110. c.Compute the

Let S=$40,K=$40,r=8%(continuously compounded),sigma=30%,Delta=0,T=0.5 yearand n=2. a.Construct the binomial tree for the stock.What are u and d? b.Show that the call price is $4.110. c.Compute the prices of American and European puts.

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Let S=$40,K=$40,r=8%(continuously compounded),sigma=30%,Delta=0,T=0.5 yearand n=2.

a.Construct the binomial tree for the stock.What are u and d?

b.Show that the call price is $4.110.

c.Compute the prices of American and European puts.