With binomial option price models the assumptions are that there are two possible outcomes hence the binomial part of the model. Dummies has always stood for taking on complex concepts and making them easy to understand. As with all for Dummies books the format succeeds in being fun and factual- however I dispute that this is for those with little or no knowledge of probability in a few pages it lapses into lots and lots of algebraic formulae which I feel is not really explained.
The formula for the binomial cumulative probability function is Fxpn sum_i0xleft beginarrayc n i endarray right pi1 - pn-i The following is the plot of the binomial cumulative distribution function with the same values of p as the pdf plots above.
P is the probability of success on any given trial. Begin alignedsumk_ i0left begin matrix. As with all for Dummies books the format succeeds in being fun and factual- however I dispute that this is for those with little or no knowledge of probability in a few pages it lapses into lots and lots of algebraic formulae which I feel is not really explained. Dummies helps everyone be more knowledgeable and confident in applying what they know.