spreadsheet 4.B.1/ question presentation 4.C

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David/ I'm going through the videos which are terrific, but I have two quick question.

First, in the PDF for video 4.B when you are valuing an American option you calculate an up-move probability of .6282. when I compute it I come out at approximately .53 : [(e^(.25*.05) - .8)/ (1.2 -.8)] = .53 - am I missing something?

Second, in going through the PDF for 4.C on page 63 when you account for duration and convexity for the convexity side of the equation multiplying by 1/2 is ommitted. It's simply convexity * (change in yield)^2. Is there a reason why we don't need to multiply by 1/2?

thanks as always/

Chris

 

[David Harper CFA FRM]

Hi Chris - Looks like a duplicate, I answered here @ http://forum.bionicturtle.com/threads/spread-sheet-4-b-1-and-page-63-in-pdf-4-c.5334/ Thanks,