= = 1. Consider the three-period binomial model with a non-dividend paying stock S, where So = 2,u = 2, d = 0.5,r 0.25. Your boss has asked you to price a European straddle option which expires at time N = 3 and has strike K = 1. The payoff of the straddle option at N is V(Straddle,Euro) = N = |SN K. (1) 2 Compute the pair (v/Straddle, Euro), 40). (40 pts) Now, compute the American Straddle price V.(Straddle, USA) with payoff G(S) = S-K. (40 pts) Finally, compute the value of a financial instrument that pays 1 the first time the stock reaches 4. If the stock never hits 4, the financial instrument expires worthless. (20 pts) = = 1. Consider the three-period binomial model with a non-dividend paying stock S, where So = 2,u = 2, d = 0.5,r 0.25. Your boss has asked you to price a European straddle option which expires at time N = 3 and has strike K = 1. The payoff of the straddle option at N is V(Straddle,Euro) = N = |SN K. (1) 2 Compute the pair (v/Straddle, Euro), 40). (40 pts) Now, compute the American Straddle price V.(Straddle, USA) with payoff G(S) = S-K. (40 pts) Finally, compute the value of a financial instrument that pays 1 the first time the stock reaches 4. If the stock never hits 4, the financial instrument expires worthless. (20 pts)