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3. Consider an n-period binomial model. Cox, Ross, and Rubinstein (1979) suggested u=eat,d=u1=eat,and1+r=ebt for some a>0,b>0, and at>bt. The log return logRit follows a risk-neutral
3. Consider an n-period binomial model. Cox, Ross, and Rubinstein (1979) suggested u=eat,d=u1=eat,and1+r=ebt for some a>0,b>0, and at>bt. The log return logRit follows a risk-neutral distribution P~(logRit=logu)=p~andP~(logRit=logd)=q~. Denote by and 2 the mean and variance of logRit, respectively. Prove p~21,q~21,n(b2a2)T,andn2a2T as n,t0, but ntT
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