Consider a European call option on a non-dividend paying stock where the stock
price is $40 the strike price is $40 the risk-free rate is 8% per annum the volatility
is 30% per annum and the time to maturity is 6-months.
(a) Construct a two-step binomial tree calculating u and d using the Cox-Ross-
Rubinstein approach to matching volatility.
(b) Show that the call price is $3.772 using a two-step tree.
(c) Compute the prices of American and European puts both with the same strike
price and time to maturity as the European call again using a two-step tree.