Questions tagged [binomial]

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American put option in binomial model - arbitrage opportunity?

I'm sorry this must be an elementary question. I spent a good deal of time searching through webs including this site for the problem but I got none. Here's the problem: Say we have a binomial tree ...
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Hedging a long position-one period from Steven Shreve Stochastic Calculus for Finance

The following question is taken from Steven Shreve Volume 1, Chapter 1, Exercise $1.6$ (Hedging a long position-one period) Consider a one period binomial stock model with $S_0=4$, $S_1(H)=8$ and $...
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Question about Paul Kupiec's “concentrated Bond loss rate distribution”

I wonder if anyone here has read the following paper by Paul Kupiec in which he approximates a loss rate distribution for a portfolio composed of (possibly) concentrated bond positions. https://www....
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Two-period binomial model for American option

Consider a two-period binomial model for a risk asset with each period equal to a year and take $S_0 = 1$, $u = 1.5$, and $l = 0.6$. The interest rate for both periods is $R = .1$. a.) Price an ...
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Jabbour-Kramin-Young ABMC Binomial Parameterization

The JKY ABMC Model (taken from Jabbour, et al. 2001) parameterizes the binomial model (in a risk-neutral world) such that, $u = e^{r\Delta t} + e^{r\Delta t}\sqrt{e^{\sigma^2\Delta t} - 1}$ $d = e^{...
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How to price an option with a “step up” feature using binomial tree?

I have a call option with expiry in two years. In my case the option is bermudan style with first 9 months w/o ability to exercise (i.e. European) and after exercise at any time (i.e. American), but I ...
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Find yield (bid and ask spread)

On March 2, a Treasury bill expiring on April 20 had a bid discount of 5.86, and an ask discount of 5.80. Calculate the best estimate of the risk-free rate to be used in valuing options with the Black ...
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How to construct one period binomial trees for price movements

If we wanted the one period binomial tree that models the price movements of a stock to have a period of 3 month, we want to set the initial price of the stock to be 100, and we want to set the ...