Consider a two-step trinomial (or ternary) market model (left(S_{t}ight)_{t=0,1,2}) with (r=0) and three possible return rates (R_{t}
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Consider a two-step trinomial (or ternary) market model \(\left(S_{t}ight)_{t=0,1,2}\) with \(r=0\) and three possible return rates \(R_{t} \in\{-1,0,1\}\). Show that the probability measure \(\mathbb{P}^{*}\) given by
is risk-neutral.
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Related Book For
Introduction To Stochastic Finance With Market Examples
ISBN: 9781032288277
2nd Edition
Authors: Nicolas Privault
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