Cont Flashcards
1
Q
What if r is not 0
A
insert (1+r) * trident symbol into 2 eps for diff prices but not end step 2 price deriv=price combo one
2
Q
What if r is not 0 and continuous compounding?
A
(e^r*t) * trident
3
Q
what can go wrong in calculations?
A
possible values of share price on expiry date can be different than expected
4
Q
model dependence
A
relying on info from the market which was wrong
5
Q
three-period model
A
break up into multiple 2-period models
6
Q
dynamic replication
A
switching between combos
7
Q
self-financing strategy
A
switching combos doesn’t cost $
8
Q
3 continuous time models
A
two period
binomial tree
continuous tree
