Problem 1 Based on historical data the mean of the stock price at time t+T for small T > 0 is E[S(t +T)] = S(t)(1+uT) for some p > 0. The variance of S(t +T) is given by Var[S(t+T)] = S(t)o-T where o2 > 0) is the annual variance. Use mean and variance matching to build a BLM for the stock in the following case: 1 U = Obtain expressions for u, d, p in terms of pl, o, T. Problem 1 Based on historical data the mean of the stock price at time t+T for small T > 0 is E[S(t +T)] = S(t)(1+uT) for some p > 0. The variance of S(t +T) is given by Var[S(t+T)] = S(t)o-T where o2 > 0) is the annual variance. Use mean and variance matching to build a BLM for the stock in the following case: 1 U = Obtain expressions for u, d, p in terms of pl, o, T