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Yes, David the formula is ok. I succesfully checked it all by construction trees through replicating cash flows of options via borrowing and buying spot stock (didnt use risk neutral probabilities at all). All the results were totally in correspondence with Hull.

What if we have a very low volatility? In the printscreens a changed up and down factors from (1,1;0,9) to (1,01;0,99) respectively. I got funny risk-neutral probabilities (see the printscreens). With such nubers our trees dont seem to work properly? How do you think?

Concerning the learning spreadsheet on RAPMs, the page called simulated information ratio (see the picture). I wonder why you choose the formula (rho)*Z(1) + sqrt(1-rho^2)*Z(2) to simulate return for Portfolio return? what is the logic behind this formula?

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