Q6. Binomial tree

a) Define and explain the numerical binomial tree method. Give an example of pricing a call using two periods.

b) Is there a relationship between the binomial tree and the formula of Black Scholes Merton (1975)?

c) Is the binomial tree useful for the calculation of dividend-bearing American options. Give an example of calculation.

d) Explain the concept of probability *** over risk in relation to the notion of usual probability.