This might sound like a weird question, but I don’t understand how the binomial interest rate tree can recombine, for example how are an up down and a down up the same?
I understand that they are the same, say for a stock that is worth $30 with an up and down factor of 1.1 and 0.9, the stock results in the same value when the stock goes up and down, and vice versa. How is this the case in the binomial interest rate tree where an up and down movement is not the same as a down and up movement.
Please help! Let me know if you would like me to rephrase my question.