Question: Consider the binomial equity model Stat=S (1+At+oAtes), where & is the Bernoulli random variable defined by with probability, with probability 2. Prove that for

Consider the binomial equity model Stat=S (1+At+oAtes), where & is the Bernoulli random variable defined by

Consider the binomial equity model Stat=S (1+At+oAtes), where & is the Bernoulli random variable defined by with probability, with probability 2. Prove that for any fixed T = NAI, when N, there is In S HT+0T2-10T, where z ~ N(0,1). So

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Answer To prove the desired result we can use the Central Limit Lets start by defining some variables S Initial price of the equity ST Price of the equity at time T Constant drift rate Constant volati... View full answer

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