r>-1

  • Thread starter Thread starter kdmfe
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Dear experts, is my below understanding correct?


Is the r>-1 is coming from this statement

&&&1 + r&&&

1+r>0, so r>-1

Extract from Stochastic Calculus for Finance 1

We introduce also an interest rate 1^n. One dollar invested in the money

market at time zero will yield 1 + r dollars at time one. Conversely, one dollar

borrowed from the money market at time zero will result in a debt of &&&1 + r&&&

at time one. In particular, the interest rate for borrowing is the same as the

interest rate for investing. It is almost always true that r >= 0, and this is

the case to keep in mind. However, the mathematics we develop requires only

that r > -1.


Kindly guide

Thank you
 
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