Question
In a binomial option pricing model, when moving from valuing an option on a non-dividend paying stock to an index option which of the following
In a binomial option pricing model, when moving from valuing an option on a non-dividend paying stock to an index option which of the following is true for estimating uptick probability P?
The risk-free rate is replaced by the excess of the domestic risk-free rate over the foreign risk-free rate in all calculations. | ||
The formula for u changes. | ||
The risk-free rate is replaced by the excess of the domestic risk-free rate over the dividend yield for discounting. | ||
The risk-free rate be replaced by the excess of the foreign risk-free rate over the domestic risk-free rate when p is calculated. |
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