# Questions tagged [binomial-tree]

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### Risk-neutral pricing and statistical arbitrages

I'm studying the martingale approach to asset pricing. Dealing with the concept of risk-neutral probability, I came up with a question about the possibility of "arbitrages in expectation". I'll be ...
40 views

### Domestic and foreign interest rate; dividends?

The spot price AUD/USD is 0.6868, strike price is 0.6915,the 6 month ATM implied volatility for AUD/USD is 7.7% p.a., for the 6 month USD deposit rate is 2.28% and the 6 month AUD deposit rate is 1.45%...
38 views

### Value of portfolio with fixed discrete dividends

I know that this is a very simple question, but i want to make sure to grasp the concept of ex dividend and value of portfolio. Suppose that we have a two period binomial tree of a stock with initial ...
61 views

### American Put Option Pricing

I am trying to solve a question of American Put Option pricing as below. Build a 15-period binomial model whose parameters should be calibrated to a Black-Scholes geometric Brownian motion model with:...
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### Pricing European Call on Coupon Bond in Lattice

What's the best approach to pricing a par call option on a coupon paying bond? Is it to discount the greater of the price and strike through the lattice? And for this, is the price used the dirty or ...
50 views

### Interest model calibration and binomial trees

Are there any good books for beginners on calibrating interest rate models and creating binomial trees based on these interest rate models and using them in pricing
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### Building implied binomial tree with American input options

i want to build an implied volatility binomial tree with American input options, so the setup is the following: 1) We know the market Price P of the American Put $P_{am}(t_i,K)$, where $t_i$ is the ...
195 views

### Convertible Bond in Foreign Currency - Quanto Adjustment

I need to value the following convertible bond: The bond notional and interest is denoted in USD, but is convertible into Euro denominated equity. Normally, I would value such a bond with a ...
166 views

### Confusion in forward contract pricing on a stock using the binomial model

In the financial engineering course I am taking we are studying how to use the binomial model to price derivatives, one of which is the forward. For this question it is related to a forward contract ...
234 views

### Previsibility in Binomial Representation Theorem

I'm working through Baxter and Rennie's "Financial Calculus: An Introduction to Derivative Pricing". It was going very well and I've actually found it an easy read up until the point where they ...
647 views

### A question about pricing convertible bond with two different underlying assets

I have a question regarding the pricing of convertible bond. If I value the convertible bond with two different underlying assets, how can I incorporate two volatility and the correlation in the ...
560 views

### What discount rate to use when valuing binomial option with real probabilities

We all know that we can use the argument of risk-neutrality and the law of one price, to get the option value without the real world probability. However, suppose if we use the real world probability ...
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### Second order convergence for the Leisen-Reimer tree

I have a question about this paper "Achieving higher order convergence for the prices of European options in binomial trees" by Mark Joshi, (Link: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=...
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### Binomial Model for options pricing with continuous compounding

I'm reading about Binomial Model on "Arbitrage Theory in Continuous Time" by Tomas Bjork. I found an important result which allow us to state that in a one period model $q_u$ and $q_d$ are actually ...
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### Trinomial tree VBA code [closed]

I am studying binomial trees and I'm implementing them in VBA to see their convergence to the BS model. I searched 3-4 hours in the web; the only good site I know is Volopta. Very simply question by ...
103 views

### Explanation on the application of CLT in bionomial tree model

We have a stock price binomial tree model of $n$ steps, with step length $\Delta t=T/n$, stock price volatility $\sigma$ s.t. $u_n=e^{\sigma\Delta t}$ and $d_n=1/u_n$, and the risk neutral probability ...
For a binomial tree, everywhere in Hull and other literature, we have found the formulas for $$u = \exp(\sigma \sqrt{h})$$ but for binomial trees based on forward prices, we get a different formula ...