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At each node of a binomial tree, a claim with next-period values has value
where is the local risk-neutral probability in a binomial market. For an American claim, replace this continuation value by the maximum of continuation and immediate exercise value.

Ancestors (7)

  1. Replicating portfolio in a binomial market
  2. Discrete-time binomial market
  3. Mathematical finance
  4. Mathematical optimization
  5. Area of mathematics
  6. Mathematics
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