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

 

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Consider the binomial equity model Stat=S₁ (1+At+o√√Ates), 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+0√T2-10³T, where z ~ N(0,1). So Consider the binomial equity model Stat=S₁ (1+At+o√√Ates), 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+0√T2-10³T, 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 the full answer