question

Consider a 3-month put option. Suppose that the underlying stock price is $25, the strike $26, the interest rate is 5% p.a., stock volatility is 6% per month. Use the same data to answer questions a)-h). f) Compute the price of the European put option using a 3-step binomial tree. Show computations for terminal and two non-terminal nodes. 8) If the market price on the European put option is $1.5, what should be the price of the European call option of the same strike and maturity to prevent arbitrage? h) Compute the price of the American put option using a 3-step binomial tree Show computations for two non-terminal nodes