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2. Consider a non-dividend paying share whose price is modelled using a 2-step binomial tree. The tree is generated using the algorithm that if S,
2. Consider a non-dividend paying share whose price is modelled using a 2-step binomial tree. The tree is generated using the algorithm that if S, is the share price at time t, then in the next time-step the share price can either be Seu or Sed, where u > 1 and d = 1/u. The proportion u is fixed for the entire tree. The continuously compounded constant risk-free rate of interest is r per unit time, where r> 0 and e" 1 and d = 1/u. The proportion u is fixed for the entire tree. The continuously compounded constant risk-free rate of interest is r per unit time, where r> 0 and e"
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