What is the recommended way of making interest rates a function of time in a Cox, Ross, Rubinstein tree?
A. Make u a function of time
B. Make p a function of time
C. Make u and p a function of time
D. Make the lengths of the time steps unequal
B
u does not depend on interest rates but p does. The impact of the interest rate being a function of time is therefore to make p a function of time.
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