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For those who love a challenge.

Asked by Charlene on 8 May 2013

Let St be the price of one share of a particular company at time t. If the price St+1 at time t+1 can either take the value of uSt with probability p1 (where u>1), remain the same with probability p2 or go down to dSt with probability 1-p1-p2 (where 0<d<1), create a Matlab function called ... that simulates {St} from t=0 to t=20 for given u,d,p1 and p2 and plots St against t. Hence, by counting the number of paths; calculate the probability that S6=S0(u^2)(d^3)

using the command RAND

2 Comments

Image Analyst on 8 May 2013

Do you have a question? I have one: is this your homework assignment? Either way, you need to ask a specific and direct question. Don't leave it up to us to assume/guess what you want.

Randy Souza on 24 May 2013

I have restored the original text of this question.

@Charlene: this question an accepted answer, so it may be valuable to someone else in the future. If you have a good reason why it should be removed from MATLAB Answers, please flag the question, explain why it should be deleted, and an administrator or high-reputation contributor will consider deleting the question. Please do not simply edit your question away.

Charlene

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1 Answer

Answer by Youssef KHMOU on 8 May 2013
Accepted answer

hi Charlene , here is an initiation :

u=1.33; 
d=0.75;
p1=0.44;
p2=0.25;
p3=1-p1-p2;
t=0:1:20;
St=zeros(size(t));
St(1)=400; % S(t=0)=S0
 for n=1:length(t)-1
     r=rand(1); % ~(Uniform)
     if r>p3 && r<p2
         St(n+1)=d*St(n);
     elseif r>p2 && r<p1
         St(n+1)=St(n);
     elseif r>p1
         St(n+1)=u*St(n);
     end
 end
 figure, plot(t,St), xlabel('time (DISCRET)'), ylabel(' PRICE in $');

1 Comment

José-Luis on 24 May 2013

Please do not post complete answers to homework questions.

Youssef  KHMOU

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