I have an exam within 2 weeks and I couldn't compute the following question. I solved to somewhere but I couldn't continue. I will be sooo happy if anyone can help me..Here comes the question:
Consider a level N binomial model. Let's S1 and S2 be two stocks modeled by this binomial tree. A
rainbow option has a payoff at time N given by= max{S1(N),S2(N)}
a)Give an algorithm for an option price at time n.
b)Give an algorithm for S1, S2 and the amounts in replicating portfolio that are invested in S1 (resp.S2)
Thanks a million