Question: So = 4, d= 0.5, u = 4, r = 1/4, N = 3 (expriration time) with K = 5 (strike price). At time 1,

So = 4, d= 0.5, u = 4, r = 1/4, N = 3 (expriration time) with K = 5 (strike price). At time 1, it will he either a call or put option.

a. Assume at time 1, you choose yhe more valuable option. If the 1st flip is Head, what will you choose? value of V1(H) at time 1 after choosing? and what if 1st is Tail?

b. Vo = ?

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