Chapter 21, Problem 24P

Summary Introduction

To determine: The reasons the risk-neutral probabilities can be used to price derivative when the investors are risk averse.

Introduction: A binomial model portrays the development of irregular variables over a progression of time steps, relegating specified probabilities to increase or decrease in the variable. The binomial option pricing model makes the improving supposition toward the finish of every period; the price of stock has just two conceivable values.