# One Period Binomial Option Valuation Model [closed]

My question here is how is the probability of an up move calculated by $$(1+Rf-D)\over(U-D)$$ derived where Rf is the risk free rate, D is the down move factor and U represents the up move factor.

Kindly help me understand the derivation and where this formula comes from as this does not make any intuitive sense to me.

• In a risk-neutral world the expected future asset price equals the forward price: $$p( \, US\,) +(1-p)(\,DS\, ) = S(1 + r_f) \implies p = \frac{1 + r_f - D}{U - D}$$ – RRL May 11 at 17:12