Question 3: Devon Energy is an oil drilling firm that operates in the Permian Basin in Texas. The firm wants to buy an average strike call option on crude oil. As the name suggests, the strike price for this type of option is equal to the average crude oil price per barrel during the option's life. The call option's payoff is max[0, SI- AVG1,1], where ST is the crude oil price per barrel at time T and AVGt1 is the average crude oil price per barrel between time t and time T. The option is European exercise. Suppose crude oil is priced at $45 per barrel and has a volatility of 40%. The riskless interest rate for continuous compounding is 5%. Using a binomial tree model with two time steps, what is the price per barrel at time t for an average strike call option with 0.5 years until expiration? Note that with two time steps, there are three prices along each price path. Thus for a given price path, AVGtT is equal to (1/3) [St+St-0.25 +ST]. Question 3: Devon Energy is an oil drilling firm that operates in the Permian Basin in Texas. The firm wants to buy an average strike call option on crude oil. As the name suggests, the strike price for this type of option is equal to the average crude oil price per barrel during the option's life. The call option's payoff is max[0, SI- AVG1,1], where ST is the crude oil price per barrel at time T and AVGt1 is the average crude oil price per barrel between time t and time T. The option is European exercise. Suppose crude oil is priced at $45 per barrel and has a volatility of 40%. The riskless interest rate for continuous compounding is 5%. Using a binomial tree model with two time steps, what is the price per barrel at time t for an average strike call option with 0.5 years until expiration? Note that with two time steps, there are three prices along each price path. Thus for a given price path, AVGtT is equal to (1/3) [St+St-0.25 +ST]