In demonstrating the transition from the binomial model to the Black?Scholesmodel, the parametrization u/d = e ????t

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In demonstrating the transition from the binomial model to the Black?Scholesmodel, the parametrization u/d = e^????t chosen in step 3, with ?t = ?/T_.?Show that the martingale principle results in the same risk-neutral probability?

if the u/d-parametrization is Taylor-expanded to second order.

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A First Course in Quantitative Finance

ISBN: 978-1108419574

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Authors: Thomas Mazzoni

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Question Posted: Feb 19, 2020 09:24 AM

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In demonstrating the transition from the binomial model to the Black?Scholesmodel, the parametrization u/d = e ????t

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VAi, 2 20

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The mart ing ale principle states that the expected return of a risky asset is equal t...View the full answer

A First Course in Quantitative Finance

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