1 / 7

Bermudan Options with the Binomial Model

Bermudan Options with the Binomial Model. Sheila Farrahi Amirhossein Heydarizadeh Oluwayinka Ogunniyi . Bermudan Option. Like Bermudian islands which are located between Europe and America, Bermudan options are a combination of American and European options .

oona
Download Presentation

Bermudan Options with the Binomial 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. Bermudan Options with the Binomial Model Sheila Farrahi Amirhossein Heydarizadeh Oluwayinka Ogunniyi

  2. Bermudan Option • Like Bermudian islands which are located between Europe and America, Bermudan options are a combination of American and European options. • Bermudan option is a type of option which can only be exercised at specific dates between the issue date and maturity.

  3. Binomial Model • Binomial model is a very popular model for option pricing, Binomial tree shows different ways that stock price can move during option’s life time based on certain probability of moving up or either down.

  4. Binomial Model • Cox-Ross-Rubenstein formula is the most common formula for the binomial tree so in our model we used Cox-Ross-Rubenstein formulas.

  5. European Options • European put and call option at the final nodes: • Other nodes:

  6. American Options • American put and call option at the final nodes: • Other nodes:

  7. Bermudan Option with Binomial Model • Consider a 6-step binomial tree with T=1.5 year and the Bermudan option can only be exercised once a year.

More Related