Consider the one-period trinomial model: the stock price St, te {0, T} can take three values:...
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Consider the one-period trinomial model: the stock price St, te {0, T} can take three values: £4; £3; £1. Assume that a stock price starts at £2 at time 0. Assume the interest rate r = 0. Show that there is an infinite number of risk-neutral probability measures for this stock. Describe all these measures. Is this market complete? Consider the one-period trinomial model: the stock price St, te {0, T} can take three values: £4; £3; £1. Assume that a stock price starts at £2 at time 0. Assume the interest rate r = 0. Show that there is an infinite number of risk-neutral probability measures for this stock. Describe all these measures. Is this market complete?
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The fact that there are an infinite number of riskneutral pr... View the full answer
Related Book For
Fundamentals of Corporate Finance
ISBN: 978-1292018409
3rd edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford
Posted Date:
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