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

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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 $');

José-Luis
on 24 May 2013

Please do not post complete answers to homework questions.

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## 2 Comments

## Image Analyst (view profile)

Direct link to this comment:http://www.mathworks.com/matlabcentral/answers/75092#comment_147977

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 (view profile)

Direct link to this comment:http://www.mathworks.com/matlabcentral/answers/75092#comment_150774

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 notsimply edit your question away.