Question: a) Consider a binomial model with So = T = 1. What is the price of a digital option that pays 1 if ST

a) Consider a binomial model with So = T = 1. What

a) Consider a binomial model with So = T = 1. What is the price of a digital option that pays 1 if ST 102 and 0 else? 100, pu = 0.8, Pd = 0.2, r = 0, u = 1.05, d = 0.95, b) Consider a binomial model with So = 100, pu = 0.4, Pd = 0.6, r = 0, u = 1.1, T = 1. Assume that the no-arbitrage price of an at-the-money call option is 1. What is d?

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