New answers tagged

2

This will depend on the nature of your tree. For a re-combining binomial tree, the number of nodes, including the initial one, will be \begin{align*} \sum_{i=1}^n i = \frac{n(n+1)}{2}. \end{align*} For the paths, as at each time $j$, there are two possibilities from each node, the total path number is $2^n$.


1

Let $B_t$ be the value of the risk-free asset at time $t$. Then $B_0=1$ and $B_{t+1} = (1+R) B_t$. Moreover, let $\beta_t$ be units invested in the risk-free asset at time $t$. It is clear that $\beta_0 = w_0 - \Delta_0 S_0$. Since the strategy is self-financing, \begin{align*} \Delta_{t-1} S_{t-1} + \beta_{t-1} B_{t-1} = \Delta_t S_{t-1} + \beta_t ...



Top 50 recent answers are included