 Risk-neutral probability in the Cox--Ross--Rubinstein model

ID: risk-neutral-probability-in-the-cox-ross-rubinstein-model

The unique equivalent martingale measure in the one-stock Cox--Ross--Rubinstein model assigns each up move probability

q = \frac{R - D}{U - D} = \frac{1 - d}{u - d}

and each down move probability

1 - q

. Under this measure the discounted stock is a martingale.

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