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I think you are interpreting too much into the matter. The $-\frac12\sigma^2$ is just a correction term that comes from Jensen's inequality. You need this when switching from supposedly symmetric returns (normal distribution) to the skewed price process (log-normal distribution). I think there are no deeper truths to be found here.

You can get quite a bit of structured data for free from the SEC's Edgar system via XML: http://www.sec.gov/edgar/quickedgar.htm http://xbrl.sec.gov/ Even the older stuff that's not xml based, is fairly readily parsable. Another source that is easier to deal with, but not free, and possibly expensive, is CapitalIQ (where Yahoo Finance gets their data ...

One thing to keep in mind here is that the world of risk-free/arbitrage-free models is not necessarily the real world. Specifically, this equation $$ \mu = r - \frac{1}{2}\sigma^2 $$ occurs not because this is the way stocks behave in reality (they don't! For S&P 500, long-run $\mu$ is closer to 6-9%, if I recall correctly), but because using any ...

Examples for cash-settled futures are: Interest Rate futures Futures on implied Volatility (e.g. on VIX) Futures on Commodity Indices: Indices such as the Dow Jones UBS consist of futures themselves. Furthermore in asset management you usually don't want physical delivery of the underlying (oil, gas, coal, pig, ... ;) Futures on Equity Indices The ...

Let's start with question (2). If you are not obtaining $S=1.5295e+009$ after backwardation, then you have a bug in your binomial tree code. You may wish to find and eliminate that before proceeding. One simple check is to make all the terminal nodes have value 1.0. You should obtain that the initial node has value $e^{-rT}$. This assumes, of course, ...