Question: Construct a binomial tree for values {N, S0, u, d, rf , X} (all the variables have the usual meaning given in lecture), where N

Construct a binomial tree for values {N, S0, u, d, rf , X} (all the variables have the usual meaning given in lecture), where N = 4 for the stock price and for the derived call option.

Be sure to highlight the stock prices as a function of the parameters, and the final call values. (Refer to the slides for the Generic Binomial Tree, if you are uncertain on how to proceed).

Show all the subtrees you should calculate (DO NOT try to solve them, only highlight which one

are they), and explain why you have less than 15 subtrees to calculate.

S0=$100, u=1.2, d=0.9, rf=0.05

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