Question: Consider a binomial model. S0 = 4. In each period, the stock price doubles with a probability of 1/2 and halves with a probability of

Consider a binomial model. S0 = 4. In each period, the stock price doubles with a probability of 1/2 and halves with a probability of 1/2. The interest rate is r = 2 . Suppose N = 2.

Show that Consider a binomial model. S0 = 4. In each period, the stock is not a martingale under the physical probability price doubles with a probability of 1/2 and halves with a probability .

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