Page 14 - #12.03e - Hull Chapter 13 - Binomial Trees PQ set

[Dr. Jayanthi Sankaran]

Hi David,

The very same situation for the above referenced : Stock price = $10, Strike Price = $10, volatility = 20%, Risk-free rate = 4%, T - 1 year.

12.03(e) What is the delta of a put option?
My answer turns out to be -0.33 using a no-arbitrage one-step Binomial Tree, while Hull's answer turns out to be -0.382 using the Black Scholes Merton model.

What should I use for examination purposes? Although this seems to be trivial, nevertheless!

Thanks!
Jayanthi

 

[David Harper CFA FRM]

HI @Jayanthi Sankaran same as the prior answer at https://forum.bionicturtle.com/thre...chapter-13-binomial-trees-hull-text-q-a.8749/ : we'd use the BSM esp given we are provided no information about the number of steps but we are given volatility. Thanks,

 

[brian.field]

It is interesting to me that the SOA and CAS seem to focus on binomial trees based on forwards, i.e., forward trees and they only mention (Cox, Ross, Rubenstein) CRR and log normal trees briefly whereas Hull only really presents CRR.

Which would you say is most common @David Harper CFA FRM?