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Running-maximum state reduction in the Cox--Ross--Rubinstein model
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Area of mathematics
Probability and statistics
Probability theory
Cox--Ross--Rubinstein model
Risk-neutral probability in the Cox--Ross--Rubinstein model
Risk-neutral valuation in the Cox--Ross--Rubinstein model
2026-10-03
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For
a
payoff
h
(
S
T
,
M
T
)
with
M
t
=
max
s
≤
t
S
s
, the
pair
(
S
t
,
M
t
)
is
a
sufficient Markov state for
valuation
. If an independent restarted stock path has initial value
y
, terminal value
z
, and running maximum
w
, then the continued payoff is
g
(
x
,
m
,
y
,
z
,
w
)
=
h
(
y
x
z
,
max
{
m
,
y
x
w
}
)
.
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(8)
Risk-neutral valuation in the Cox--Ross--Rubinstein model
Risk-neutral probability in the Cox--Ross--Rubinstein model
Cox--Ross--Rubinstein model
Probability theory
Probability and statistics
Area of mathematics
Mathematics
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Past exam of the mathematics course of the University of Cambridge
/
2019
/
ii
/
Paper 4
/
29K
/
d
/
Solution
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