Arbitrage [8] Consider the the binomial option pricing model, where the constants u and d are used

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Arbitrage [8]

Consider the the binomial option pricing model, where the constants u and d are used to generate future states Su

= uS and Sd

= dS, and where r is the risk free interest rate. Show that if d < u < (1 + r) an arbitrage opportunity (free lunch) exists.

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Lectures On Corporate Finance

ISBN: B00RGENH5I

1st Edition

Authors: Peter L Bossaerts ,Bernt Arne Odegaard

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Question Posted: Oct 25, 2024 06:00 AM

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Arbitrage [8] Consider the the binomial option pricing model, where the constants u and d are used to generate future states Su = uS and Sd = dS, and where r is the risk free interest rate. Show that...
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Arbitrage [8] Consider the the binomial option pricing model, where the constants u and d are used

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Lectures On Corporate Finance

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