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3. (a) 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

3. (a) 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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