Unformatted text preview: p, < p < 1. We let N k denote the number of successes after k independent trials. De±ne the discrete process Y k by N kkp , the excess number of successes above the mean kp . Show that Y k is a martingale. 5. Consider the twoperiod securities model in the lecture note of Topic 3, p.16. Suppose the riskless interest rate r violates the restriction r < . 2, say, r = 0 . 3. Construct an arbitrage opportunity associated with the securities model. 6. Deduce the price formula for a European put option with terminal payo² max( XS, 0) for the nperiod binomial model. 1...
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This note was uploaded on 02/01/2012 for the course MATH A taught by Professor A during the Spring '11 term at HKU.
 Spring '11
 A
 Algebra, Derivative

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