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Continuing with the model of previous problem S 0 = 27, u = 4/3, d = 2/3, and r = 1/9, we are now…


Continuing with the model of previous problem S0 = 27, u = 4/3, d = 2/3, and r = 1/9, we are now interested in finding value VS of the American straddle |S3 – 30|. Comparing with the values VP and VC of the call and the put computed in the previous problem we see that VS VP C VC. Explain why this should be true.