# Questions tagged [binomial-tree]

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### binomial trees and finite differences

I was reading Tavella Randall book and their explanation why binomial trees are a particular example of finite differences. I started having additional questions. So, they way they do that is saying ...
198 views

### Is there a more efficient data structure to implement binomial trees than 2d array?

I'm just curious what is the "industry standard" for implementing a binomial tree (if "standards" exist in this case). For simplicity, let's just talk about the simplest trees with recombining nodes. ...
26 views

### Futures vs Forward pricing with different interest rates using binomial model

I'm given the aforementioned parameters for a two-step binomial model where the underlying pays no dividend, $S_0=50$ and $T=2$. With this information I was able to calculate the risk-neutral ...
285 views

### Binomial Model Implementation Trouble - American and European options come out equal

I'm Trying to implement the binomial option price model in python and get reasonable performance by using memoization. I checked the output against a black and scholes model and for European options ...
61 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
115 views

### 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=...
130 views

### Efficient construction of binomial tree

The goal is to build a $n$ step binomial tree knowing the end nodal probabibilities $p_1, \dots, p_m$, which correspond to the time $T$ states $S_1, \dots, S_m$. We assume that all paths ending in the ...
148 views

### How to simulate a Geometric Binomial Process with state/tie dependent increments?

I want to simulate a geometric binomial process with state/time dependent increments. So the model is given by \begin{align}R_t=\frac{X_t}{X_{t-1}}\end{align} \begin{align}P(R_t=u)=p(X_{t-1},t) \...
27 views

### Replication Portfolios and Binomial Option Pricing

To price a call/put option with two possible future states of the world, I understand we can price the option by essentially calculating the price of a replicating portfolio that gives the same ...
85 views

### What is the probability of a lookback option ending in the money (CRR-model)

I would like to compute the probability that a certain lookback option ends in the money, let's say that the option has the following payoff $h_N=\max\left\{0,K-\min\{S_1,...,S_N\}\right\}$ where $K$ ...
56 views

### One periodic binomial model

I need to look into a one-period Binomial model $(B_t, S_t)$ with interest rate $r = 0.1$ , $S_0 = 100$ and $$S_t= 120 \, \text{with probability}\, 0.5$$ $$S_t= 60\, \text{with probability}\, 0.5$$...
41 views

### How does LR binomial Tree Model handle input values which would cause NA result?

I am using C++ to implement a LR binomial Tree algorithm to price American options, but I find it would constantly generate invalid output, which is "nan" value in C++, although the input value seems ...
121 views

### Binomial Option Pricing - Hedging

I'm working on a project which is requiring me to test Binomial option pricing on real data. So far I have just been working with test data and my option pricing method works fine. The issue I'm ...
299 views

### 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 ...
118 views

### Quantlib binomial tree

I was trying to price options with the extendedBinomialTree class of quantlib. I actually tried at some point to modify this class in order to optimize it. Normally the drift and diffusion of the ...