Question: No information on volatility, just the above information = = = Consider a binomial model with T 2 periods, S 100, u = 1.6 and

No information on volatility, just the above information

= = = Consider a binomial model with T 2 periods, S 100, u = 1.6 and d 0.6. The interest rate is r = 0.1. What is the price at time t = 0 for an American put option that has exercise price K = 97? Hint: To avoid too many calculations, you are given that the risk-neutral probability of one-step up movement is p = 0.505, and that Su= 160, Sd = 60, Su2 = 256, Sd2 = 36, Sud = 96. [9]

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