DEFINITION of 'Down Transition Probability'
The probability that an asset's value will decline in one period's time within the context of an option pricing model. The option pricing models using a down transition probability are both the binomial and trinomial option pricing models.
BREAKING DOWN 'Down Transition Probability'
In a binomial option pricing model, the probability that an option's underlying asset declines in value over a time step may be denoted by 1Qu, where Qu represents the probability that the option's underlying asset will increase over the next time step in decimal form.
Under the trinomial model, the probability of a down transition is equal to the probability of an upward transition or an equal transition over the next time step not happening. If we denote Qu as the probability of the underlying asset increasing in value over the next time step, Qd as the probability the value of the underlying asset will decrease over the next time step, then the probability that the underlying asset's value stays the same is 1QuQd.

Trinomial Option Pricing Model
An option pricing model incorporating three possible values that ... 
Binomial Option Pricing Model
An options valuation method developed by Cox, et al, in 1979. ... 
Option Pricing Theory
Any model or theorybased approach for calculating the fair ... 
Binomial Distribution
A probability distribution that summarizes the likelihood that ... 
BjerksundStensland Model
A closedform option pricing model used to calculate the price ... 
Model Risk
A type of risk that occurs when a financial model used to measure ...

Options & Futures
Breaking Down The Binomial Model To Value An Option
Find out how to carve your way into this valuation model niche. 
Fundamental Analysis
Examples To Understand The Binomial Option Pricing Model
Binomial option pricing model, based on risk neutral valuation, offers a unique alternative to BlackScholes. Here are detailed examples with calculations using Binomial model and explanation ... 
Options & Futures
The Anatomy of Options
Find out how you can use the "Greeks" to guide your options trading strategy and help balance your portfolio. 
Options & Futures
Using Decision Trees In Finance
These decisionmaking tools play an integral role in corporate finance and economic forecasting. 
Options & Futures
Options Pricing: CoxRubenstein Binomial Option Pricing Model
The CoxRubenstein (or CoxRossRubenstein) binomial option pricing model is a variation of the original BlackScholes option pricing model. It was first proposed in 1979 by financial economists/engineers ... 
Options & Futures
Circumvent Limitations of BlackScholes Model
Mathematical or quantitative modelbased trading continues to gain momentum, despite major failures like the financial crisis of 200809, which was attributed to the flawed use of trading models. ... 
Options & Futures
How To Build Valuation Models Like BlackScholes (BS)?
Want to build a model like BlackScholes? Here are the tips and guidelines for developing a framework with the example of the BlackScholes model. 
Forex Education
Financial Forecasting: The Bayesian Method
This method can help refine probability estimates using an intuitive process. 
Options & Futures
What Is Option Moneyness?
Get the basics under your cap before you get into the game. 
Technical Indicators
Basics Of The Binomial Distribution
Despite the fancysounding name, you already understand the Binomial Distribution, and you can use it to make money. Ready? Read on.

What is the average return on equity for a company in the electronics sector?
Learn about the BlackScholes option pricing model and the binomial options model, and understand the advantages of the binomial ... Read Answer >> 
How is implied volatility for options impacted by a bearish market?
Learn why implied volatility for option prices increases during bear markets, and learn about the different models for pricing ... Read Answer >> 
Do options make more sense during bull or bear markets?
Understand how options may be used in both bullish and bearish markets, and learn the basics of options pricing and certain ... Read Answer >> 
Are put options more difficult to trade than call options?
Learn about the difficulty of trading both call and put options. Explore how put options earn profits with underlying assets ... Read Answer >> 
What technical skills must one possess to trade options?
Learn about the technical skills required to trade options and how mathematical and computer science skills give you a better ... Read Answer >> 
How do speculators profit from options?
As a quick summary, options are financial derivatives that give their holders the right to buy or sell a specific asset by ... Read Answer >>