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Problem 3. [1 point] Consider a CRR model with T=2,S0=$100,S1=$200 or S1=$50. Now consider an American call option with strike price K=$80. Assume that the

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Problem 3. [1 point] Consider a CRR model with T=2,S0=$100,S1=$200 or S1=$50. Now consider an American call option with strike price K=$80. Assume that the risk free interest rate is r=0.1. (a) Use a binary tree to compute the arbitrage free initial price of the American call option. (b) Explicitly show that the Snell envelope U of Y is a p - supermartingale. (c) Verify that Ep[U0]Ep[U1]Ep[U2]

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