hard · FRM Part 1
An analyst values a 2-step American put and discovers that the option is exercised at the 'down-down' terminal node and the 'down' intermediate node. The terminal payoffs are P_uu=0, P_ud=2, P_dd=12.
If p=0.5 and r=0, and the intermediate values are P_u=1 and P_d=8 (where 8 is the intrinsic value), what is the root value?
- 3.5
- 5.0
- 4.5
- 4.0
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