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Math Help - Binomial Lattace Model

  1. #1
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    Binomial Lattace Model

    I need to calculate the pdf for X_i after one year given:
    This assumes there is a move in the stock market, either up or down each week.
    up=1.012
    down=.99
    p=.52
    n=52 weeks

    i
    Do I use S_n = S_0 *u^n-i * d^i ?

    Not sure how to show this.

    Thanks
    Last edited by taypez; March 26th 2008 at 04:40 PM.
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  2. #2
    Grand Panjandrum
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    Quote Originally Posted by taypez View Post
    I need to calculate the pdf for X_i after one year given:
    This assumes there is a move in the stock market, either up or down each week.
    up=1.012
    down=.99
    p=.52
    n=52 weeks

    i
    Do I use S_n = S_0 *u^n-i * d^i ?

    Not sure how to show this.

    Thanks
    The probability of n upward movements and 52-n downward movements is:

    p(n.52-n)=b(n;52,0.52)

    so the p(X=1.012^n 0.99^{52-n})=b(n;52,0.52)

    RonL
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