mathjacks
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 Mar 22 comment How can I show that $u=e^{\sigma\sqrt{\Delta t}}$ in the binomial option pricing model Thank you, Probilitator. Mar 21 comment How can I show that $u=e^{\sigma\sqrt{\Delta t}}$ in the binomial option pricing model Great thank you. Looking forward to your addition to the answer. It's been incredibly helpful so far. Mar 21 comment How can I show that $u=e^{\sigma\sqrt{\Delta t}}$ in the binomial option pricing model I meant to say "a function of $\Delta t$" not just $\Delta$. Mar 21 comment How can I show that $u=e^{\sigma\sqrt{\Delta t}}$ in the binomial option pricing model How do you know u is a function of $\Delta t$ and not, say, a function of $\Delta$ and $r$? And how do you "guess" to set $u(\Delta t) = e^{-\sigma \sqrt{\Delta t}}$? Mar 20 comment How can I show that $u=e^{\sigma\sqrt{\Delta t}}$ in the binomial option pricing model I'm actually just curious about how to derive the value of u that I listed given the formula that I have. From Hull, I don't get a clear picture of how that derivation happens and I imagine it's a matter of simple mathematics?