CFAI 2012 mock AM Q9 2012, long, period, matter, option

suyash1989

just know that for pricing the option price using one-period binomial tree on the 60-day call, the denominator use one year rate 3% not 3%*60/365? so no matter how long the period, we need to use the one year rate? is that right?

Swanand

had the same issue. checked the curriculum, but they always speak of 1 period or 2 periods, no specific timelines… anybody?

king_kong

that formula is specific for the option binomial. not used throughout the material.

Micholien

So can anyone explain why we have U =1.15, we don’t use D =1/1.15 but 0.9

thommo77

They rounded. They give you up 15% (1.15) and down 10% (.90). 1/1.15 is approx .9