915 Irrelevance of a stocks Expected return When we are valuing an option in terms of the underlying stock the expected return on the stock is irrelevant This is because in our formula f= SoA- SouA-e-rT f does not involve the probability of the stock moving up or down It does not matter if we say the probability of an increase is 50% or 80%We get the same result Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, Shanghai Normal UniversityOptions, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, Shanghai Normal University 9.15 Irrelevance of a Stock’s Expected Return • When we are valuing an option in terms of the underlying stock the expected return on the stock is irrelevant • This is because in our formula f = S0D - (S0uD-fu )e -rT f does not involve the probability of the stock moving up or down • It does not matter if we say the probability of an increase is 50% or 80% we get the same result •