Binomial pricing
Suppose that either S(t + ?t) = S(t) u or S(t + ?t) = S(t) d where u > 0 and d > 0. Let C(t) be the price of a European call option on S(t) which matures at time t + ?t and whose exercise price is E.
(a) Compute C(t) if both S(t) u < E and S(t) d < E. (This value is very simple.)
b) Compute C(t) if S(t) u > E and S(t) d > E. (This value simplifies.)