Show that stochastic process forms a submartingale

Reference no: EM13148577

For the binomial lattice model, Sn = S0 Y1 × · · ·×Yn , suppose p = 0.75,d = 0.90, u = 1.5:

(a) If S0 = 2, compute E(S2 ) and V ar(S2 ).
(b) If S0 = 2, compute P (S3 ≤ 2).
(c) When r = 0.05: Show that the stochastic process Mn = Sn /(1 + r)n , n ≥ 0, forms a SUBmartingale

Reference no: EM13148577

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Show that stochastic process forms a submartingale : For the binomial lattice model, Sn = S0 Y1 × · · ·×Yn , suppose p = 0.75,d = 0.90, u = 1.5:When r = 0.05: Show that the stochastic process Mn = Sn /(1 + r)n , n ≥ 0, forms a SUBmartingale.

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