Okay, i’ve now missed this on two separate practice tests. I thought I had drilled it into my thick skull the last time, but appearantly not. Probability of up move = (1 + Rf - D) / (U-D) Prob (up) = (1 + Rf -D) / (U-D) Prob (up) = (1 + Rf - D) / (U-D) Anyone have an intuitive way of understanding this, or do I just need to to choke it down, like sublimity’s mom.
if u cant remember that formula, u are gonna be fucked for currency swaps, arbitrage, and the more complex LOSes.
Just have to drill this one over and over. U D = 1/U pU = (1+r-D)/(U-D) pD = 1-pU dlt = [(C+)-(C-)]/[(S+)-(S-)] dlt x # options = fractional shares