Suppose S0= 4,u= 2,d=1/2 and r=1/4. Let N= 2. Consider an American put option with strike price K= 5. Use the backward algorithm in Theorem 4.4.3 to evaluate v0,v1,v2 (can ignore the compare part)

1. (40 points) Suppose So = 4, u = 2, d = and r = 1. Let N = 2. Consider an American put option with strike price K = 5. Use the backward algorithm in Theorem 4.4.3 to evaluate VO, V1, V2. (Compare your findings with the results on Pages 102-103.) 1. (40 points) Suppose So = 4, u = 2, d = and r = 1. Let N = 2. Consider an American put option with strike price K = 5. Use the backward algorithm in Theorem 4.4.3 to evaluate VO, V1, V2. (Compare your findings with the results on Pages 102-103.)