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.

Option Pricing Theory
Option pricing theory is any model or theorybased approach for ... 
Binomial Distribution
A probability distribution that summarizes the likelihood that ... 
Prior Probability
The probability that an event will reflect established beliefs ... 
Joint Probability
A joint probability is a statistical measure where the likelihood ... 
Risk Of Ruin
The probability of an individual losing sufficient trading or ... 
Probability Distribution
A statistical function that describes all the possible values ...

Investing
Financial Forecasting: The Bayesian Method
This method can help refine probability estimates using an intuitive process. 
Investing
Using decision trees in finance
Decision trees are a major tool that can be used in corporate finance and economic forecasting. 
Trading
The "True" Cost Of Stock Options
Perhaps the real cost of employee stock options is already accounted for in the expense of buyback programs. 
Trading
The Ins and Outs of Selling Options
Selling options can seem intimidating, but with these tips you can enter the market with confidence. 
Trading
What Is Option Moneyness?
Get the basics under your cap before you get into the game. 
Trading
Trading Options on Futures Contracts
Futures contracts are available for all sorts of financial products, from equity indexes to precious metals. Trading options based on futures means buying call or put options based on the direction ... 
Investing
Why Options Trading Is Not for the Faint of Heart
Trading options is not easy and should only be done under the guidance of a professional.

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 >> 
Regular Vs. Exotic Options: What's the Difference?
Before learning about exotic options, you need a fairly good understanding of regular options. Read Answer >> 
How can derivatives be used to earn income?
Learn how option selling strategies can be used to collect premium amounts as income, and understand how selling covered ... Read Answer >> 
How does implied volatility impact the pricing of options?
Learn about two specific volatility types associated with options and how implied volatility can impact the pricing of options. Read Answer >>