What are the formulas for u and d in terms of volatility

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Reference no: EM131237315

1. What are the formulas for u and d in terms of volatility?

2. Consider the situation in which stock price movements during the life of a European option are governed by a two-step binomial tree. Explain why it is not possible to set up a position in the stock and the option that remains riskless for the whole of the life of the option.

Reference no: EM131237315

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