2. Binomial trees for American options:

a. Using a 2-step binomial tree with = 1.20, = 0.90, = 0.10 per step, compare the prices of a European call and an American call both with = 120 when O = 120.

b. Using a 2-step binomial tree with = 1.10, = 0.95, = 0.02 per step, compute the prices of a European call and an American call both with = 14 when O = 12, assuming that a dividend of 3 liras is paid at time 1.