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 ù).
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.