Use a 3-step binomial tree to value a European put option. Draw the tree. The option expires in 6 months.

The interest rate is 10% annually continuously compounded. The spot price is at 100. U= 1.2 and D = 0.8.

The strike price of this option is 95. Show all of your calculations. - USE PEN AND PAPER FOR DIAGRAMS AND SOLUTIONS

Explain and contrast the two approaches an investment bank could take to creating a principle protected structured product: the bond plus option

Explain why the delta hedging of a negative gamma options position loses money.