FRM: Two step binomial

[@gareginmelkonyan953]

CAN YOU PLEASE SHARE THE EXCEL SHEET? I need to know how you obtained those values.

[@george-mattgrounder-bentle9019]

This was extremely helpful, when looking just at formulas it can be very confusing, but with your explanation I do not need to memorise any formulas as I now understand it. My University exam is tomorrow lol.

[@bionicturtle]

We are happy to hear that this was so helpful. Good luck on your exam!

[@Loserbethy]

Thank you! You've saved me. My exam is tomorrow and I can work through these problems now.

[@bionicturtle]

What's interesting to me is the general inverse correlation between certainty of correction and accuracy. When somebody is certain ("must"), those are never correct. Uncertain fixes are more reliable. Most reliable are questions that assume I am correct and viewer is incorrect; those are highly predictive of actual mistake !!??

[@samvitsaroj4757]

How do we get u and d?

[@HARSHBENIWAL23]

Simple, to the point explanation. 👍

[@bionicturtle]

Thank you for watching!

[@krishnaKumar-zi6ct]

Thanks for the clear and visual explanation !!

[@bionicturtle]

Discounting directly, to my knowledge, is not invalid and is logical. However, the above merely illustrates a standard binomial tree with so-called backward induction. The 0.5 nodes are discounted to the two 0.25 nodes, which in turn (backwards), are discounted to the one PV. Just as the tree builds forward one branch, so too the discounting in reverse. Thanks

[@bionicturtle]

Nope, this tree makes the (typical) assumption that price is lognormal (i.e., Cox Ross such that is intervals reduce, you've got the Black-Sholes). So it recombines flat: ud = exp(volatility*SQRT[t])*exp(-volatility*SQRT[t]) = 1.0.

[@tower1990]

thank you so much for the help, your explanation is very clear!!! If every lecturer is as half good as you do, we humanity will advance much quicker...haha

[@JohnJohn-yz3fi]

Did I miss something or he didn't take into account the dividend at all?

[@SteveBiko2017]

Would you kindly highlight how you derived the probability of the up jump...

[@tibordeak570]

The formula is (exp((r-q)dt)-d)/(u-d). But his explanation totally misses the point.

[@zubair1424]

7:25 to 8:56 is horrendous FYI

[@zF15z]

surely the 500 that is on the 3rd node is incorrect. If a stock were to go up 10% from 100 to 110, then fall by 10%, the value is 99. Therefore that 500 must be incorrect?

[@nelsonng7026]

can you given me the equation of discounting them back? because i cannot get $84.23

[@jr200uk]

+Nelson Ng =(174.93*0.488)/(1+0.05*0.25)

[@andrigilang]

thanks for the tutorial, its easy to understand

[@samkaz321]

David..You Rock Man!! My FRM Guru :)

[@rishabhtiwaari6378]

how to calculate p??

[@NuggetPotatoe]

P= (e^rt-d)\(u-d)

[@limonadepacific63]

p=(a-d)/(u-d)

[@JiewKwang]

@humayunrali i guess its just a rounding up error.

[@littlejupiter89]

doing this right now!!! in exam on Thursday......

[@Staryu99]

Thanks a lot on your great explanation

[@srpollaa]

hi... good one... can you kindly upload the xls file as well

[@chung2792]

Thanks a lot!

[@bionicturtle]

You're welcome James Day! Thanks for watching!

[@ArunKumar-yb2jn]

You are using Excel only as a JPEG image. The formula bar isn't visible and the video is quite verbose. This is so simple that it should have been live-solved and recorded. Saves tons of explanations.

[@passenger61]

Thank you

[@shankarthapa001]

thanks - it was very helpful

[@n3367]

god bless you, david! :)

[@glr4764]

How do you find P? It is the only part I don't get because it isn't shown or explained :(

[@limonadepacific63]

p=(a-d)/(u-d)

[@bionicturtle]

thank you, very kind!

[@EArtVideos]

Good evening! i have 2 questions unsolved: 1) how should i input the dividend yields in my calculations 2) why you use p and (1-p), and not the risk neutral probabilities??

[@mohamedsuhail3365]

Formula 4.56