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makros5
April 25th 2008, 06:58 PM
Can somebody please explain me in the solution how did he get the rh = .005? The question says it is 3-period binomial tree and 9-month option. In that case isn't h = 1/3, if so, rh should be 0.00667. Can someone please confirm.

Thanks

zmkramer
April 26th 2008, 01:52 PM
Can somebody please explain me in the solution how did he get the rh = .005? The question says it is 3-period binomial tree and 9-month option. In that case isn't h = 1/3, if so, rh should be 0.00667. Can someone please confirm.

Thanks

don't forget the fact that its a 9 month option. which expressed as a fraction of a year would be .75 so multiply .00667 by .75

lee_onion
April 29th 2008, 11:41 PM
don't forget the fact that its a 9 month option. which expressed as a fraction of a year would be .75 so multiply .00667 by .75

Agree with zmkramer. Here h = 0.25, so rh = 0.005