1. Binomial tree

A stock price is currently $30. During each two-month period for the next four

months it is expected to increase by 8% or decrease by 10%. No dividend payment is

expected during these two periods. The risk-free interest rate is 5% per annum. Use a

two-step tree to calculate the value of a European-style derivative that pays off [max(30-ST,0)] , where ST is the stock price in four months? (hint: please note that

this is not a typical put option, since the final payoff is the square of the normal put option payoff.)this is not a typical put option, since the final payoff is the square of the normal put option payoff.)