1 / 7

N Period Binomial Option Pricing Model

N Period Binomial Option Pricing Model. Kevin Clarke. Call options A call option gives the holder the right to buy the underlying asset by a certain date for a certain price. Put options

kaori
Download Presentation

N Period Binomial Option Pricing Model

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. N Period Binomial Option Pricing Model Kevin Clarke

  2. Call options A call option gives the holder the right to buy the underlying asset by a certain date for a certain price Put options A put option gives the holder the right to sell the underlying asset by a certain date for a certain price Options

  3. Su ƒu S ƒ Sd ƒd One Step Binomial Tree • A derivative lasts for time T and is dependent on a stock

  4. Pricing Options From a One Step Tree Consider a portfolio consisting of a long position in  shares and a short position in one option. Assume that no arbitrage opportunities exist.

  5. Su ƒu Su² ƒuu S ƒ Sd ƒd Sud ƒud Sd² ƒdd Two Step Binomial Tree

  6. Four Step Binomial Tree S0u4 S0u3 S0u2 S0u2 S0u S0u S0 S0 S0 S0d S0d S0d2 S0d 2 S0d3 S0d4

  7. Si+1,j+1 ƒi+1,j+1 Si,j ƒi,j Si+1,j ƒI+1,j General Case (p) (p-1)

More Related