Consider a stock with current price So over a period of length T. Let u and...

 

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Consider a stock with current price So over a period of length T. Let u and d denote relationships between the current price So and two possible closing prices ST, where the "high" possible price is ST Sou, and the "low" possible price is ST = Sod. We will refer to u and d as the up/down factors. Let r be the risk-free interest rate, per annum. Explain why it is realistic to assume 0 < d <1 eT < u from the point of view of finance. = Consider a stock with current price So over a period of length T. Let u and d denote relationships between the current price So and two possible closing prices ST, where the "high" possible price is ST Sou, and the "low" possible price is ST = Sod. We will refer to u and d as the up/down factors. Let r be the risk-free interest rate, per annum. Explain why it is realistic to assume 0 < d <1 eT < u from the point of view of finance. =

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Heres why its realistic to assume 0 d 1 eT u in finance 0 d 1 This represents a downward price movem... View the full answer