and N() is the cumulative normal distribution. Compare and comment on the values obtained from the Binomial and Trinomial methods compared to the analytical solution. Could the Binomial and id? If no how? Trinomial values hoon in
and N() is the cumulative normal distribution. Compare and comment on the values obtained from the Binomial and Trinomial methods compared to the analytical solution. Could the Binomial and id? If no how? Trinomial values hoon in
Chapter5: Exponential And Logarithmic Functions
Section5.5: Exponential And Logarithmic Models
Problem 4ECP
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Transcribed Image Text:The an alytic pricing formula for pricing a European Call is
C (S, t) = SN (d1) – Ee"(T-t) N (d2)
where
In () + (r + žo²) (T – t)
oVT -t
di =
d2 = d1 - ovT -t.
and N (.) is the cumulative normal distribution. Compare and comment on the values obtained from
the Binomial and Trinomial methods compared to the an alytical solution. Could the Binomial and
Trinomial values been improved? If so how?
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