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Unformatted text preview: {The reason for this restriction is that it ensures that there will be ‘path independence’ so that you can do the analysis according to conventional lines as used in financial analyses. As emphasized in class, this assumption is not realistic for many designs.) To do this exercise, you will need to exercise your model of performance or cost, so as to calculate the value of being in each node of the lattice (at a specified level of the uncertainty, at the specified time. The object of this exercise is to make sure that you understand the process using a lattice to value a single option. You may use the “binomial lattice.xls” that I have made available on the web (see Schedule for lecture on Binomial Lattice). 1...
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This note was uploaded on 11/08/2011 for the course AERO 16.851 taught by Professor Ldavidmiller during the Fall '03 term at MIT.
 Fall '03
 lDavidMiller

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