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Consider a binomial model with a Bond with interest rate Rb = 10%. The initial Stock price So = $100 and the initial bond price Bo = $10. If the stock goes up, the rate is Rs(+) = 20% and if it goes down the rate is Rs(-) = -10%. On the x,y plane draw a domain representing the set of all portfolios (x,y) that lead to a self-financing one step strategy with x1=x stock shares and y1=y bonds.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M91232074

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