Suppose that in each period the cost of a security either, Ask an Expert

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Suppose that, in each period, the cost of a security either goes up by a factor of u = 2 or down by a factor d = 1/2. Assume the initial price of the security is $100 and that the interest rate r is 0.

a) Compute the risk neutral probabilities p (price moves up) and q = 1 − p (price moves down) for this model.

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Financial Management, Finance

Category:- Financial Management
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