monsieuruzairo3
Member
Dear David,
Binomial pricing model is quite commonplace in the syllabus for non-dividend paying stocks. However if we were to have dividend paying stock we will use
P(u) (Probability of up movt) = (exp^(r-q)*t - D)/(U-D)
This is pretty clear, however when we calculate payoffs(multiplied by probability) and discount them to today do we use disounting factor of exp^(-r)*t or exp^(-(r-q)*t)
I haven't found any question asking to calculate price for dividend paying stock using binomial method. Do you think there is a possibility of it springing up in the exam?
KR
Uzi
Binomial pricing model is quite commonplace in the syllabus for non-dividend paying stocks. However if we were to have dividend paying stock we will use
P(u) (Probability of up movt) = (exp^(r-q)*t - D)/(U-D)
This is pretty clear, however when we calculate payoffs(multiplied by probability) and discount them to today do we use disounting factor of exp^(-r)*t or exp^(-(r-q)*t)
I haven't found any question asking to calculate price for dividend paying stock using binomial method. Do you think there is a possibility of it springing up in the exam?
KR
Uzi