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( 5 ) ( 2 0 points ) Compute widetilde ( E ) 1 [ S 3 ] , widetilde ( E ) 2 [
points Compute widetildewidetilde and Verify that widetilde
widetilde
points Suppose
a You have a European security which pays you $ if the stock price has
jumped up twice and $ otherwise. Use the backward algorithm to find
and for
b You have a European security which pays you $ if the stock price
has jumped up twice and $ otherwise. Use the conditional expectation
method to find for
Solve and
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