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In the Cox-Ross-Rubinstein formula, if the volatility is 10% and the time step is 1 year,...

In the Cox-Ross-Rubinstein formula, if the volatility is 10% and the time step is 1 year, the up-factor is:

a) 1.2

b). 1.1

c). 1.0

d). 0.9

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Answer #1

The up factor in Cox-Ross-Rubinstein formula is calculated using the formula:

where σ is the volatility which is 10%, time step = t = 1 year

= 1.105

Answer -> 1.1

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