HW 7 solutions are now posted. Please note the following:
- Do Problem 11.9, and NOT 11.10. The latter is about pricing puts using binomial trees, which we did not talk about. (If you’re interested, however, the only difference is that you go short on the stock and long on the calls for the riskless portfolio).
- Problem 11.12 is about two-step trees, since I said you are not responsible for these so treat it like a one-step tree. In particular, change the second sentence to read, “Over each of the next two three-month periods the next three months it is expected to go up by 6% or down by 5%.“
Enjoy, and see you in class on Tuesday.