Question: Consider a binomial model with =0.22,=0.06 and interest rate r=5% annual, both compounded continuously. Using T=1 maturity of one year, initial stock price S(0)=100 and

Consider a binomial model with =0.22,=0.06 and interest rate r=5% annual,

Consider a binomial model with =0.22,=0.06 and interest rate r=5% annual, both compounded continuously. Using T=1 maturity of one year, initial stock price S(0)=100 and N=4 periods, consider the American Call CAm with strike K=95. 1. At which states of the world is early exercise rational? 2. Find the premium of this Call today t=0. 3. Suppose the stock moves are Up/Up/ Down/Down. Compute the replicating portfolio and the exercise strategy along that scenario

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