In the Jarrow-Rudd (JR) Binomial Model, the Volatility Is Given $\sigma = 0.2$

question 13

Multiple Choice

In the Jarrow-Rudd (JR) binomial model, the volatility is given as $\sigma = 0.2$ . The risk-free rate of interest is 2%. What is the risk-neutral probability of an up move on a binomial tree with a time step of one month?

• A) 0.45
• B) 0.50
• C) 0.55
• D) 0.60

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