Posted by
**abdul** on
.

Consider the N-period binomial model and processes Y0,Y1,...YN and C0,C1,...CN. Suppose that Y is Markov and C is deterministic (i.e., Cn does not depend on the coin flips รน).

a) Show: If Cn doesn't equal 0 for all n, then C0Y0,C1Y1,....,CNYN is Markov.

b) Give an example of processes C and Y such that at least one Cn is zero and C0Y0,C1Y1,....,CNYN is not Markov.