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Last lecture• Gamma distribution
Gamma density
Last lecture• Bernoulli and binomial distribution• Application of binomial distriubiton
What do you think?Can we use a binomial distribution to model the financial market.
i.e one stock price going up or down for the next T days.
a) Yesb) No
Yes, with some assumptions about the market. actually, this is the a building block for discrete time Black-Scholes model
If you are interested, look at http://www.math.uh.edu/~rohop/spring_13/Chapter2.pdf