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Different u & d for each stage
AFM
Sir, is it possible for each stage of the binomial tree to have different u & d? Thanks. Video Details ------------- Advanced Financial Management - AFM Derivatives Analysis and Valuation #95. Binomial - Different Probabilities
Answers (3)
Sriram Somayajula Admin
No unlikey
Sir, I did not understand it. Could you please explain it once more?
Thread Starter
Denz PhilipSir, I did not understand it. Could you please explain it once more?
If u & D are diff at each stage the p cannot be computed. U & D have to be constant through out for U of 1.2, D can 0.8 or 0.7 but D cannot be 0.8 for year 1 & 0.7 for year 2 - it has to be constant
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