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Please just do parts b. and d. Problem 6.4. Cox-Ross-Rubinstein (CRR) The Cox-Ross-Rubinstein model is a binomial tree in which the up and down factors
Please just do parts b. and d.
Problem 6.4. Cox-Ross-Rubinstein (CRR) The Cox-Ross-Rubinstein model is a binomial tree in which the up and down factors are given as where denotes the volatility parameter and h stands for the length of a single period in a tree. a. (2 points) What is the ratio Su/Sd? t is the (as simplified as possible) expression for the risk-neutral probability of the stock price going up in a single step? c. (2 points) Express Sud in terms of S(0), and h in a CRR tree. d. (5 points) As was the case with the forward tree, the no-arbitrage condition for the binomial asset- pricing model is satisfied for the CRR tree regardless of the specific values of . r and h. True or false? Problem 6.4. Cox-Ross-Rubinstein (CRR) The Cox-Ross-Rubinstein model is a binomial tree in which the up and down factors are given as where denotes the volatility parameter and h stands for the length of a single period in a tree. a. (2 points) What is the ratio Su/Sd? t is the (as simplified as possible) expression for the risk-neutral probability of the stock price going up in a single step? c. (2 points) Express Sud in terms of S(0), and h in a CRR tree. d. (5 points) As was the case with the forward tree, the no-arbitrage condition for the binomial asset- pricing model is satisfied for the CRR tree regardless of the specific values of . r and h. True or false
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