= 1/4, valid = Consider a two-step binomial model with dates t = 0,1,2, simple interest rate r for both time periods, and a risky asset with price process satisfying So 4, as well as St St-1(1+ Rt), where Rt (G) 1/2 and R(B): -1/2, for t = 1,2. In this model, we consider an American lookback put option with exercise value Ft = Mt St at t = 0, 1, 2, where Mt is the maximum value that the stock reached up to time t. = 1. Identify the (unique) risk-neutral probability in the model. 2. Calculate the price of the American look-back put on each node of the tree. 3. Identify the nodes of the binomial tree where the holder should not exercise this option. [3 marks] 4. Explain fully what is the hedging strategy for the seller of this American put, giving details to what happens if the holder fails to exercise optimally.