Question IV.2. Determine the arbitrage-free price of the sum of an American put option with a strike of 280 and an Amer

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Question IV.2.
Determine the arbitrage-free price of the sum of an American put
option with a strike of 280 and an American call option with a
strike of 240 on the same underlying in a oneperiod binomial model
(t0, t1). The initial underlying value is 250 and u1 = 1.2, d1 =
0.9. The one-year riskless interest rate r is 8%.
The steps you will need to follow include:
• Create the event tree for the underlying risky asset.
• Calculate whether to exercise the options and their
payoffs.
• Compute the hedging strategies (a trading strategy in the
underlying asset and riskless bond).
Hint: S u 1 = S0 ∗ u1