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Notice that, like the single period ternary model of Chapter 1, the two-step binomial model allows the stock to take on three distinct values at
- Notice that, like the single period ternary model of Chapter 1, the two-step binomial model allows the stock to take on three distinct values at time 2. Show, however, that every claim can be exactly replicated by a self-financing portfolio, that is, the market is complete. More generally, show that if the market evolves according to a k-step binomial model then it is complete.
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