## Second edition p.154

This forum is to discuss the book "the concepts and practice of mathematical finance" by Mark Joshi.

### Second edition p.154

Hi Mark,

On this page you explained that to make the trinomial tree complete we need the price of a call option. I seem to understand this. However, the option's strike must be within 80-120, otherwise "the option then loses its non-linearity and can be replicated as a linear multiple of stock and bond ...". I'm not quite sure why the strike must be from 80 to 120. Thanks.
tfs13952

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Joined: Sat Apr 06, 2013 7:56 am

### Re: Second edition p.154

if the strike is outwith that range the pay-off is a multiple of stock and bond so it doesn't help you.
mj

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Joined: Fri Jul 27, 2007 7:21 am

### Re: Second edition p.154

mj wrote:if the strike is outwith that range the pay-off is a multiple of stock and bond so it doesn't help you.

By the replication argument or risk-neutral argument, should this range be 90-110 instead? Since if the strike is 81, it seems that we could still calculate a unique set of solution for holdings of stock and bond to replicate the payoffs of the option. I'm not sure if I get this right?
tfs13952

Posts: 3
Joined: Sat Apr 06, 2013 7:56 am

### Re: Second edition p.154

i think you have an old printing, in the current printing it says 90-110.
mj

Posts: 1380
Joined: Fri Jul 27, 2007 7:21 am

### Re: Second edition p.154

Oh really? I didn't notice that. Thank you very much.
tfs13952

Posts: 3
Joined: Sat Apr 06, 2013 7:56 am