3.1. A stock in the three-period binomial model satisfies So 4, S₁ (H) = 8, S₁ (T) 2, and r = 0.25. You wish to price an

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3 1 A Stock In The Three Period Binomial Model Satisfies So 4 S H 8 S T 2 And R 0 25 You Wish To Price An 1 (71.14 KiB) Viewed 12 times

3.1. A stock in the three-period binomial model satisfies So 4, S₁ (H) = 8, S₁ (T) 2, and r = 0.25. You wish to price an up-and-out call with barrier value 15 and strike price 5. This call is priced as a standard European call, except that the option dissolves (leaving the holder of the option with nothing) if the stock price ever meets or exceeds 15. = = Work out the value tree for this option and determine whether or not the pricess (Vo, V₁, V2, V3) is a Markov process in the risk-neutral measure. Here v = 1/(1+r) is the one-period discount factor for the risk-free rate.