1
$\begingroup$

I need help in getting a more intuitive understanding of this lemma 3.2.6 in Vol 1 of Shreve's Stochastic Calculus for Finance:

formula

Here, in the context of multi-period binomial pricing model, Y is a random variable that depends only on the first m toin cosses, where m is greater than or equal to n. Z is the Radon Nikodym Derivative process such that

formula2

I understand the equation, and I can derive it mathematically by myself without any help too. Its just that I can't find an intuition behind it. Any kind of help would be great. Thanks !

$\endgroup$
  • $\begingroup$ I would love to have an answer to this one as well! $\endgroup$ – DrEntropy Oct 25 at 21:14

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.