Module 49.4: Binomial Model for Options Values Flashcards
1
Q
What is the formula to calculate the risk-neutral probability of an up-move?
A
(1 + rf - D) / (U -D)
d = size of downward movement u = size of upward movement.
2
Q
When can early excersing on an american option be more valuable then a european equivalent?
A
when the stock option is about to pay dividends.
