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Apr
2
revised Few questions on Binomial-Lattice Option Valuation
added edit 2 as an additional question; added 10 characters in body
Apr
2
comment Few questions on Binomial-Lattice Option Valuation
If the binomial lattice is giving me option PV's, and my PV's are supposed to decrease with time, then why does half of values in my terminal nodes show an increase in values than what I start with (=S0). I have attached a snapshot of the values in the question.
Apr
1
comment Risk neutral probability in binomial lattice option coming greater than 1…what's wrong?
The first condition doesn't do any good either. Usually u~[1.001,1.5], and as I said in comment to quant_dev that by putting nColumn=1000, which gives del_T=0.02, then you can calculate that your given condition is satisfied, however the p is still greater than 1.
Apr
1
comment better estimator of volatility for small samples
webs1.uidaho.edu/geoe428/files/GeostatSec7.pdf: You dont need to read all of it. Just get the idea of making a cut-off limit and using binary numbers 0 and 1 to populate your distribution. This way you can subdue the effect of outliers.
Apr
1
comment better estimator of volatility for small samples
I am speaking from perspective in my application of reservoir engineering modeling. I am also aware of its usability and popularity from taking a course on Stochastic Modeling. Moreoever, I was comparing indicator transform with rank transform. Nevertheless, if you want a solution to your problem you might want to explore what a sequential indicator transform does.
Mar
31
revised better estimator of volatility for small samples
added 112 characters in body
Mar
31
answered better estimator of volatility for small samples
Mar
30
comment Risk neutral probability in binomial lattice option coming greater than 1…what's wrong?
Here's the wikipedia article: en.wikipedia.org/wiki/Binomial_options_pricing_model
Mar
29
revised Few questions on Binomial-Lattice Option Valuation
added matlab code of binomial lattice
Mar
29
asked Few questions on Binomial-Lattice Option Valuation
Mar
29
comment Risk neutral probability in binomial lattice option coming greater than 1…what's wrong?
It doesn't. Even if I make nColumn=1000 and T=20, still p=4.1291.
Mar
29
asked Risk neutral probability in binomial lattice option coming greater than 1…what's wrong?
Feb
18
awarded  Quorum
Feb
8
comment Deterministic interpretation of stochastic differential equation
@richardh: And moreover I never said he could solve SDE by discretizing it. I specifically gave him the link to show the final formula which is an implicit equation, and can only be solved by Finite Difference.
Feb
8
comment Deterministic interpretation of stochastic differential equation
@richardh: I didn't presume that what he's showing is not correct. I gave my answer based on his equation. Moreover, what I said is a differential term with power 1/2 is indeed the same. That term comes from Wiener process' formula. I gave answer based on his equation. And to be fair, I doubt your answer's correctness in starting, however I don't have time to look up that and then downvote the answer with the courage of not giving reason. Once again, my answer was based on his equation and not on standard GBM equation.
Feb
8
awarded  Critic
Feb
8
awarded  Commentator
Feb
8
comment Deterministic interpretation of stochastic differential equation
Whoever downvoted, write comment for that.
Feb
8
comment What's the difference between volatility and variance?
I think variance is called quadratic measure, or double moment, not volatility.
Feb
8
answered What's the difference between volatility and variance?