Consider an option that pays the holder the amount 

At maturity where S_T is the terminal price of the stock and K the option’s strike price. Such an option is one example of a power option. Consider a binomial tree with initial stock price S = 60 and parameters u = 1.20 and d = 0.833. Suppose the per-period gross rate of interest is r = 1.01. Value a power option of the form (18.77) that has a maturity of two periods and a strike of K = 70.