Question: Suppose our stock model has three branches (i.e. a trinomial tree), Su, Sm, and Sd. Can we construct a replicating portfolio using only units of

Suppose our stock model has three branches (i.e. a trinomial tree), Su, Sm, and Sd. Can we construct a replicating portfolio using only units of the stock S and a bond with risk-free rate r? (b) What happens if we add a third instrument to our portfolio: another stock, or another bond (with a different rate)?

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