Question: Problem1 Consider pricing put options on a stock. We use the binomial lattice technique to price options. The current price of the stock is $20.

Problem1 Consider pricing put options on a stock. We use the binomial lattice technique to price options. The current price of the stock is $20. The strike price is $21 and the option maturity is 6 months The risk-free interest rate is 12% per annum (compounded continuously)We shall take the length of each time step of the lattice At equal to 2 months. Also assume that the up and down parameters of the stock price lattice u and d are given by 1.I and 0.9 respectively. (a) Draw the binomial lattice for the stock price (b) Compute the risk-neutral probability q (c) Calculate the European option price. (d) Calculate the American option price

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