Hull, Binomial Trees, BSM, Greeks - 9th edition

[Kashif Khalid]

Hi there

is the topic on options very different from last years syllabus given that GARP now uses the 9th edition of Hull?

if so do you plan on issuing a new video for this part?

thanks

Kashif

 

[David Harper CFA FRM]

Hi Kashif (@Kashkha ) The topics are virtually unchanged in the 9th edition of Hull generally. With respect to T4 Valuation, they are further identical (in fact, I don't think binomial, BSM or Greeks have changed since possibly the 6th edition, or maybe 7th at most). However, yes, we are definitely recording new videos for these section before the May exam. Thanks!

 

[Anir]

Hi David,
I have a question on binomial tree, here it goes:

Currently, shares of ABC corp trades at USD 100. The monthly risk neutral probability of the price increasing by USD 10 is 30% and the probability of the price decreasing by USD 10 is 70% . What are the mean and SD of the price after 2 months if the price changes on consecutive months are independent?

Mean SD
a 70 11.32
b 70 12.96
c 92 11.32
d 92 12.96

I have developed the 2 step bionomial tree but after that I am not able to progress. The answer is "d" but I am not able to arrive at it. Request if your help on this.

 

[ShaktiRathore]

Hi
After 1 month PriceU=110 and PriceD=90
After 2 monrh PriceUU=120,PriceUD=100=PriceDU,PriceDD=80
Exp value after 2 month=mean=pU^2*PriceUU+2*pU*pD*PriceUD+pD^2*PriceDD=.3^2*120+2*.3*.7*100+.7^2*80=10.8+42+39.2=92
Sd=sqrt(.3^2*(120-92)^2+.21*2*(100-92)^2+.49*(80-92)^2)=sqrt(168)=12.96
Thanks

 

[Anir]

Hi,

Thanks a ton !!