p********0
发帖数: 186 | 1 If we assume a flat term structure/risk free interest rate is known R,
assume we also two possiblity of the price changes, u and d
the Risk Neutral probablity = (R-d)/(u-d). We can back out using binomial
tree.
But if we donot have the flat term structure assumption,
should we always assume the Risk Neutral probability to be 1/2? | c*******n
发帖数: 718 | 2 什么时候assume 1/2了?
【在 p********0 的大作中提到】
: If we assume a flat term structure/risk free interest rate is known R,
: assume we also two possiblity of the price changes, u and d
: the Risk Neutral probablity = (R-d)/(u-d). We can back out using binomial
: tree.
: But if we donot have the flat term structure assumption,
: should we always assume the Risk Neutral probability to be 1/2?
| p********0
发帖数: 186 | 3 in some problem set, prof just assume to be 1/2.
Also if we didnot know the flat term risk free interest rate,
the p = 1/2+ 1/2*v/\sigma*sqrt(t) used in binomial can be considered risk
neutral probablity? | p********0
发帖数: 186 | 4 Assume we are using binomial to derive the short rate lattice
so we can calculate a bond price backward using q=1/2.
The 1/2 is the risk neutral pricing we get, where we get this 1/2,
is the 1/2 risk neutral probability?
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u 1.3
d 0.9
q 0.5
Short Rate 0.00 1.00 2.00 3.00 4.00 5.00
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