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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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1 Answer

Answer by Youssef Khmou
on 8 May 2013
 Accepted Answer

hi Charlene , here is an initiation :

St(1)=400; % S(t=0)=S0
 for n=1:length(t)-1
     r=rand(1); % ~(Uniform)
     if r>p3 && r<p2
     elseif r>p2 && r<p1
     elseif r>p1
 figure, plot(t,St), xlabel('time (DISCRET)'), ylabel(' PRICE in $');

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