, by T-Exercise 02 In the course we fixed the relation u= in the specification of the binomial model that is used as an approximation to the Black-Scholes model. For even MEN, this implies s(0)u%d" = s(0). Replace the condition (1.3), i.e. u= s(0)u2 d = K. (a) Your task is to show the following: Setting (this will ease your computation) a = exp(rA), y= = (50) and B= ya+l+a exp(04) we get the following result for the parameters u, d,q: 2 U= =B+V B2 -7. d=B B2 V -Y d 9 U-d (b) Describe the benefit of this new condition and in what scenario it could be used. , by T-Exercise 02 In the course we fixed the relation u= in the specification of the binomial model that is used as an approximation to the Black-Scholes model. For even MEN, this implies s(0)u%d" = s(0). Replace the condition (1.3), i.e. u= s(0)u2 d = K. (a) Your task is to show the following: Setting (this will ease your computation) a = exp(rA), y= = (50) and B= ya+l+a exp(04) we get the following result for the parameters u, d,q: 2 U= =B+V B2 -7. d=B B2 V -Y d 9 U-d (b) Describe the benefit of this new condition and in what scenario it could be used