# Binomial Option Model Up and Down move

One mock 1, there was a question that gave the size of the up move as 15% and the size of the down move as 20%. when calculating the probabilty of the up and down move, I thought that you would take 1/1.15 to find the size of the down move to calculate the probability. They used the size of the down move as .8, where 1/1.15 is .87. Can someone help me with this? If they give you the size of the down moe in %, so you just use 1-that % to get the size of the downmove?

starting value was 52 up = 15% down = 20% up = 52 * 1.15 = 59.80 down = 52 * 0.80 = 41.60 Then the probability of going up is (1+Rf-U) / (D-U) = (1+5%-1.15) / (0.80-1.15) = 28.57% chances of going up 1 - 28.57% = 71.42% chances of going down

I thought prob of up was: 1+Rf-D/ U-D ?

osbornb Wrote: ------------------------------------------------------- > I thought prob of up was: 1+Rf-D/ U-D ? yep U>1+Rf>D

It is 1+rf - D/ U-D. There is a 71.4% chance of an up move.

Sorry guys mixed them up

but where did .8 come from in this? Is it 1-.2? I thought to get size of D you take 1 / U…U is 1.15. So shouldn’t down be .87?

It is the right formula But when given numbers, don’t argue and roll with the flow

So I just over thought it. IF they give it to you, just use it, don’t derive it like a jackass. Understood