... Mk= mg;m=1;2;:::Then2, 1is the number of periods between the first arrival at level 1 and the first arrival at level2. The distribution of2, 1is the same as the distribution of1(see ... that the optimal rule is Rule 1, i.e., stop (exercise the put) as soon as the stock pricefalls to 2, and the value of the put is32ifS0=4.Suppose instead we start withS0=8, and stop the ... invests the remainder of her wealth,X1, 1S1in the money market. In the next period, her wealth will be given by the right-hand side of the following equation, and shewants it to beV2. Therefore,...