Questions tagged [lattice]

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Multi curve modelling using the lattice method

Context : I'm modelling both libor and ois using the lattice method described in this paper by John hull : https://pdfhost.io/v/iYt5xIKBS_Multicurve_Modelling_Using_Trees And on this final stage it ...
1 vote
0 answers
61 views

Tree Pricing FRN Implementation

When pricing a bond via a short rate model on a tree, it seems natural to include intermediate time steps in addition to those corresponding to cashflow dates (i.e. for bonds with American style ...
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5 votes
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Why Vasicek model on a tree is a bad choice for pricing American option on credit prepayment?

I have an American option on a credit prepayment, i.e. the holder of the option can prepay the remaining credit if the interest rate falls below the initial strike. The pricing of this option was done ...
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2 votes
1 answer
70 views

Non-recombining lattice in non-markovian models

Brigo&Mercurio Interest Rate Models - Theory and Practice, 2nd edition, when treating not markovian HJM models, says the following "the approximating lattice will not be recombining and the ...
3 votes
1 answer
329 views

Difference between tree and lattice approach

Is there any difference between the tree and lattice approach for valuing derivatives? I was under the impression that both are the same.
1 vote
2 answers
68 views

Modeling exercise notice time using lattices?

I am interested in modeling callable (say European) bonds which have a time gap between when the future call exercise is decided and when the call actually occurs (payoff) - say 7 business days. I am ...
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2 votes
1 answer
78 views

Trinomial model for stock options with deterministic interest curve

I am implementing a basic trinomial model with constant volatility right now. I want to do an extension that does not take a constant riskfree rate as input, but interpolates between different given ...
1 vote
0 answers
202 views

Bonds with embedded options pricing via binomial model

Notation: t - time; G(t) - zero-coupon yield curve; $r$, $r_d$, $r_u$ - interest rates. The task is to find market price of a bond for today, while knowing the price of a number of other bonds. ...
5 votes
0 answers
3k views

Implied volatility from American options using python

I am currently trying to construct volatility surface from american option prices (using Cox-Ross-Rubinstein tree) in Python 2.7. Below you can find the code I came up with. Any corrections would be ...
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1 vote
1 answer
495 views

Lattice Boltzmann method for pricing options

I'm looking into whether there is ANY information out there regarding the implementation of the Lattice Boltzmann method for pricing options (or other financial tasks). I am very new to the world of ...
2 votes
0 answers
87 views

Calculating the error of a Trinomial Model

I've been trying to find a formula to obtain the maximum relative error a trinomial model with n timesteps will incur given all other inputs as compared to the standard BSM model. I'm concerned mostly ...
4 votes
2 answers
591 views

Iterating through every path of a Trinomial Tree

I am attempting to come up with an algorithm to iterate through every possible path of a trinomial tree and am having difficulties coming up with one. Is there any literature on this or has anyone ...