Question: 1) Explain the ways in which a simple one step binomial tree (with assumed u and d) can be expanded into a useful model. 2)

1) Explain the ways in which a simple one step binomial tree (with assumed u and d) can be expanded into a useful model.

2) Explain in detail the steps you take for an American option to get the terminal (final) node option values. Do the same for the nodes occurring prior to the terminal nodes.

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