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Old 06.01.2011, 14:35
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Probability for Finance Lecture Question Help!?

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
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Old 06.01.2011, 15:19
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Re: Probability for Finance Lecture Question Help!?

I'm a tad too lazy right now to actually solve the question, but it'a a binomial option pricing model
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finance, mathematics, probability, question

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