Hi Sitting Duck, Can you please check my maths, something doesn’t look right. Been a while since I did probabilities.
Assumptions; Current spot ncp =11.48 Q, target spot =12 V (200day hist Volatility) = .4683 Time = 2 weeks, = .035yrs
Probability that ncp will be over 12.00 in 2 weeks is P = N (ln(Q/spot)/Vt) , from your previous advice.
Therefore Q/spot = 12/11.48 = 1.0453 Ln(q/spot) = .0443 Ln(q/spot)/vt = 2.4595 N(Ln(q/spot)/vt) = .9930 Prob of being below is .007
So the probability would be .993 which seems way too high to me. I tried doing (q/s)/vt before doing ln, but that was worse, and the solution was 1.0 ! Ive used excels normSdist with mean of 0 and std dev of 1, this is OK? I ran the numbers on other stocks, and it is still strange.
What have I done wrong?
Once it is all working, I assume that I can use the 20day HV instead of the 200dHV to fine tune it?
Many thanks for your help. I think this could be very worthwhile.
