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Inspect an unequal-weight record
Current price is 100, terminal states 140 and 90, and the period factor is 1.05. Grown current price is 105. The model weight is (105−90)/(140−90)=0.3, leaving lower-state weight 0.7.
Check what equal weighting would price
Equal weighting gives underlying expiry average 115 and current value 115/1.05=109.523810, inconsistent with supplied current price 100. Counting two branches has not justified their prices.
Trace the claim consequence
For a strike-100 call, payoffs are 40 and zero. Correct model value is 0.3×40/1.05=11.428571. Equal weighting would give 19.047619.
| Method | Higher weight | Call value |
|---|---|---|
| Derived | 30% | 11.428571 |
| Assumed equal | 50% | 19.047619 |
Use the underlying consistency equation
Solve the weight from the supplied current price, states and interval factor. Equal weights can occur in particular records, but symmetry must be established by the inputs rather than the branch count.