Question
Consider a binomial model. S0 = 4. In each period, the stock price doubles with a probability of 1/2 and halves with a probability of
Consider a binomial model. S0 = 4. In each period, the stock price doubles with a probability of 1/2 and halves with a probability of 1/2. The interest rate is r = 2 . Suppose N = 2.
Show that 
is not a martingale under the physical probability 
.
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Financial Economics
Authors: Zvi Bodie, Robert C Merton, David Cleeton
2nd Edition
0558785751, 9780558785758
