Solved: Consider the three-period binomial model with s0 16 u 3 d, Basic Statistics

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Consider the three-period binomial model with s0 16 u 3 d

Question: Consider the three-period binomial model with S₀ = 16, u = 3, d = ½ and r = 1/3. An American limited liability call option pays min{(S_n 10)+, 60} if exercised at time 0 n 3. In words it is a call option but your profit is limited to $60. Find the value and the optimal exercise strategy.

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Basic Statistics: Consider the three-period binomial model with s0 16 u 3 d

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Basic Statistics: Consider the three-period binomial model with s0 16 u 3 d

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