Suppose we used a trinomial tree with three replicating securities instead of a binomial tree with two

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Suppose we used a trinomial tree with three replicating securities instead of a binomial tree with two securities. Would the dynamic replication be “self-financing”?

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Derivatives Principles And Practice

ISBN: 9780078034732

2nd Edition

Authors: Rangarajan Sundaram

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Question Posted: Jan 10, 2024 01:00 AM

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Suppose we used a trinomial tree with three replicating securities instead of a binomial tree with two

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Yes the replication will still be selffinancing ...View the full answer

Derivatives Principles And Practice

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