The Cox-Ross-Rubinstein (CRR) model is a Binomial tree in which the up and down factors are given as u = e^(σ sqrt(h)) , d = e^(−σ sqrt(h)) , where σ denotes the volatility parameter and h stands for the length of a single period in a tree. 3.1.1 What is the ratio Su/Sd? 3.1.2 What is the (as simplified as possible) expression for the risk-neutral probability of the stock price going up in a single step?
The Cox-Ross-Rubinstein (CRR) model is a Binomial tree in which the up and down factors are given as u = e^(σ sqrt(h)) , d = e^(−σ sqrt(h)) , where σ denotes the volatility parameter and h stands for the length of a single period in a tree. 3.1.1 What is the ratio Su/Sd? 3.1.2 What is the (as simplified as possible) expression for the risk-neutral probability of the stock price going up in a single step?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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3.1 The Cox-Ross-Rubinstein (CRR) model is a Binomial tree in which the up and down
factors are given as
u = e^(σ sqrt(h))
, d = e^(−σ sqrt(h))
,
where σ denotes the volatility parameter and h stands for the length of a single period
in a tree.
3.1.1 What is the ratio Su/Sd?
3.1.2 What is the (as simplified as possible) expression for the risk-neutral probability
of the stock price going up in a single step?
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