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emcor
emcor
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Is it fair to assume u*d=1$(ud=1)$ in the binomial tree option pricing model?

I have a discussion with my colleague on why a general assumption u*d=1$$ud=1$$ in binomial tree option pricing model. would be necessary?

I take it a simplification of the problem, otherwise, there will be more intermediate nodes in the tree, which will be hard to compute. While my colleague insists that since the underlying is often log normallognormal with 0 mean, u*d=1 is$ud=1$ were a fair assumption.

I think his explanation is acceptable. The question is, is there any other reason to make u*d=1$ud=1$ assumption?

Is it fair to assume u*d=1 in binomial tree option pricing model?

I have a discussion with my colleague on why a general assumption u*d=1 in binomial tree option pricing model.

I take it a simplification of the problem, otherwise, there will be more intermediate nodes in the tree, which will be hard to compute. While my colleague insists that since the underlying is often log normal with 0 mean, u*d=1 is a fair assumption.

I think his explanation is acceptable. The question is is there any other reason to make u*d=1 assumption?

Is it fair to assume $(ud=1)$ in the binomial tree option pricing model?

I have discussion with my colleague on why a general assumption $$ud=1$$ in binomial tree option pricing model would be necessary?

I take it a simplification of the problem, otherwise, there will be more intermediate nodes in the tree, which will be hard to compute. While my colleague insists that since the underlying is often lognormal with 0 mean, $ud=1$ were a fair assumption.

I think his explanation is acceptable. The question, is there any other reason to make $ud=1$ assumption?

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Is it fair to assume u*d=1 in binomial tree option pricing model?

I have a discussion with my colleague on why a general assumption u*d=1 in binomial tree option pricing model.

I take it a simplification of the problem, otherwise, there will be more intermediate nodes in the tree, which will be hard to compute. While my colleague insists that since the underlying is often log normal with 0 mean, u*d=1 is a fair assumption.

I think his explanation is acceptable. The question is is there any other reason to make u*d=1 assumption?