What are the u, the up state multiplier, and d, the down state multiplier, if there are monthly intervals and the standard deviation is .38?
A) 1.1159; .8961
B) .0317; 31.5789
C) .0317; .9683
D) .2193; .7807

Question

Quizplus · Accepted Answer

The up and down state multipliers can be calculated using the formulas u = e^(σ√Δt) and d = e^(-σ√Δt), where σ is the standard deviation and Δt is the time interval in years. For monthly intervals, Δt = 1/12. Plugging in the values, u = e^(0.38√(1/12)) ≈ 1.1159 and d = e^(-0.38√(1/12)) ≈ 0.8961.

What Are the U, the Up State Multiplier, and D