easy · FRM Part 1 Valuation and Risk Models
When calculating the risk-neutral probability p in a multi-step binomial tree, how does the value of p change from the first step to the last step if r, u, and d are constant?
- It fluctuates based on the path taken to reach the node.
- It increases as we get closer to expiration.
- It remains constant throughout the tree.
- It decreases as the stock price moves higher.
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