3.1 The Cox-Ross-Rubinstein (CRR) model is a Binomial tree in which the up and down factors are given as u = e^(σ sqrt(h)) , d = e^(−σ sqrt(h)) , where σ denotes the volatility parameter and h stands...

3.1 The Cox-Ross-Rubinstein (CRR) model is a Binomial tree in which the up and down

factors are given as

u = e^(σ sqrt(h))

, d = e^(−σ sqrt(h))

,

where σ denotes the volatility parameter and h stands for the length of a single period

in a tree.

3.1.1 What is the ratio Su/Sd?

3.1.2 What is the (as simplified as possible) expression for the risk-neutral probability

of the stock price going up in a single step?