New answers tagged

0

Let's $p_0$ be the initial stock price, $q$ be the risk free probability of $p_0$ ends up at $p_1$, assuming risk free rate is 0 then $$ p_0 = q p_1 + (1-q) p_2$$ so $$ q = \frac{(p_0 - p_2)}{(p_1-p_2)}$$. So the exotic price after one step is $$ q \sqrt{p_1} + (1-q) \sqrt{p_2} $$.


Top 50 recent answers are included