Compute the risk neutral probabilities

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Question: 1. 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.

Reference no: EM131793564

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