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Suppose you have a three step binary model. The current stock price is $40. In each step, the stock price can go up or down
Suppose you have a three step binary model. The current stock price is $40. In each step, the stock price can go up or down by 10 percent. The default interest rate is 12% and the strike price is $42. Consider the Bermuda put-option: The holder has the option to exercise at n=1 or n=3. What is the price of the option?
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