1. 

   Trainee_Act Member

   Hi,
   
   I am doing this part of the online classroom and am getting q=2.129 but the tutorial has q=0.500436.
   I have u=1.015827 and d=0.98442.
   
   Could someone let me know where I am going wrong?
   
   Thanks.

    

   Trainee_Act, Feb 21, 2022

   #1
2. 

   Steve Hales ActEd Tutor Staff Member

   q is a "probability" - so anything greater than 1 is dubious.
   What's your formula for q?

    

   Steve Hales, Feb 21, 2022

   #2
3. 

   Trainee_Act Member

   q = (exp(r)-d)/(u-d)

    

   Trainee_Act, Feb 21, 2022

   #3
4. 

   Steve Hales ActEd Tutor Staff Member

   The r in the question is a per annum amount but each step of the binomial model is only one day in length, so your formula needs to be;
   q = (exp(r/365)-d)/(u-d)

    

   Steve Hales, Feb 21, 2022

   #4
5. 

   Trainee_Act Member

   Problem solved thank you very much!

    

   Trainee_Act, Feb 21, 2022

   #5

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