Decided to turn my comment into a full answer.
This question is based on a false assumption: namely, that preventing Ukraine from joining NATO and/or the EU is Russia's only demand. This has never been the case. In December last year, Russia presented a list of demands that included NATO withdrawing all its troops from countries that had entered the alliance after 1997, and not allowing any new countries into the alliance (not just Ukraine).
On March 7th, with the invasion underway, Russia presented a new list of four demands that it wants Ukraine to meet before it will call off its military activities. They may all seem reasonable, but when you put them all together in context, suddenly they stop looking quite so reasonable.
1. For Ukraine to enshrine neutrality in its constitution, preventing it from joining NATO and the EU.
This seems like a reasonable demand, but fear of Russian invasion or subversion, and the protection that those organisations would provide, was one of the main reasons Ukraine wanted to join them in the first place. For what it's worth, President Volodymyr Zelenskyy has expressed a willingness to abandon joining NATO, though this has less to do Russia's demands and more to do with his dissatisfaction with NATO's response to the invasion:
Regarding NATO, I have cooled down regarding this question long ago after we understood that NATO is not prepared to accept Ukraine. The alliance is afraid of controversial things and confrontation with Russia.
He does not, however, seem to have backed down with regards to joining the EU.
2. For Ukraine to cease all military hostilities.
This demand is predicated in the Russian belief that Ukraine are the aggressors and have been committing genocide against ethnic Russians in the Donbas region, on whose behalf Russia is intervening. In other words, it's Russia saying "You started this, we'll stop firing if you stop first". The international consensus, however, is that Russia has used false flag operations to paint Ukraine as the aggressor, and that Ukraine is merely defending itself from an unjustified invasion.
Furthermore, there have been a number of ceasefire violations reported during the Donbas conflict, and several more reported during the present invasion, which cast doubt over whether a Ukrainian ceasefire would be honoured, and would likely make them reluctant to offer one in the first place.
3. For Ukraine to recognise Crimea as being part of Russia.
As you've noted, Russia already de facto controls Crimea and has done for eight years, so why not just accept reality and give in to this demand? Well, firstly, as ZOMVID-19 noted in their answer, Zelensky has repeatedly promised to take back control of Crimea, one way or another. Reneging on that promise and giving up on Crimea would be political suicide.
Secondly, Russia's annexation of Crimea is widely deemed to have been illegal. If Country A can steal part of Country B's territory by force, and Country B just allows it, that sets a very dangerous precedent - not only for Country B, but for any other countries with neighbours similar to Country A. Countries highly value their territorial integrity and generally take a dim view of anything that threatens it.
Thirdly, Vladimir Putin has repeatedly expressed Russian irredentist beliefs, seeking to reclaim lands that he believes are rightfully Russia's. Just two days before the invasion, he declared in a speech that Ukraine was one such land, and that its statehood was illegitimate. As such, if Putin is allowed to keep Crimea, there's no guarantee he'll stop there - he may well attempt to conquer the rest of Ukraine at a later date, under the belief that it should be rightfully his.
4. For Ukraine to acknowledge the independence of the Donetsk and Luhansk regions.
This is unpalatable to Ukraine for much the same reason that the loss of Crimea would be: it's a threat to their territorial integrity. Again, however, Zelensky has expressed a willingness to discuss this:
It is important to me how people who want to be part of Ukraine will live there. I am interested in the opinion of those who see themselves as citizens of the Russian Federation. However, we must discuss this issue.
So if it can be conclusively proven that the people of Donetsk and Luhansk want to be part of Russia - or at least, not part of Ukraine - Zelensky may be willing to agree to this demand, but that's a big if, and until then, the chances of him agreeing seem slim.
Additionally, while they haven't included it in their list of demands, it's clear from Russia's rhetoric that they want the Ukrainian government, whom they describe as "drug addicts and neo-Nazis", to be removed from power (and, presumably, replaced with a pro-Russian government akin to that of Viktor Yanukovych, who was previously deposed in the Euromaidan uprising). It should be fairly self-evident why the Ukrainian government won't agree to that one.
Finally, there's the simple matter of morality. As you noted, choosing Option 1 and giving in to Russia's demands would be the easy thing for Ukraine to do, but would it be the morally correct thing to do? Would it be the brave thing to do? What kind of message would it send to the rest of the world about Ukraine's willingness to stand up to the likes of Vladimir Putin? Zelensky knows this, and he's made his opinion on that matter abundantly clear:
I never wanted to be a country which is begging something on its knees. We are not going to be that country, and I don't want to be that president.
Granted, he's talking about NATO accession rather than Russia's demands, but this clearly isn't a man who's going to be cowed by threats of (or, indeed, actual) violence against his people.
