Question: 6) Consider the following binomial model for a stock S t , for t = 0, 1, 2. The value of p is 0.75. a)

6) Consider the following binomial model for a stock St, for t = 0, 1, 2. The value of p is 0.75.

a) What are the probabilities of S2 =121 or 99 or 81?

b) What are the expected stock prices at dates 1 and 2?

c) Is the stock price variance increasing, decreasing or constant across time? Use the concept of Markov process, if required

6) Consider the following binomial model for a stock St, for t

121 110 100 99 90 8 81

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