Level II Study Handbook Sample - uppermark.com

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6 Topic 3 Selected Hedge Fund Strategy – Convertible Arbitrage where Nu and Nd are the conversion probabilities from the previous up node and down node, respectively, and p is the up transition probability defined as: edrt p ud ∆ − = −, where u and d were defined in L.O. 10 as ue= σ ∆t and du=1/.The up transition probability represents the probability that the stock price increases.

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