AmericanBinomCall¶
Purpose¶
Prices American call options using the binomial method.
Format¶
-
c =
AmericanBinomCall(S0, K, r, div, tau, sigma, N)¶ - Parameters:
S0 (scalar) – current price.
K (Mx1 vector) – strike prices.
r (scalar) – risk free rate.
div (scalar) – continuous dividend yield.
tau (scalar) – elapsed time to exercise in annualized days of trading.
sigma (scalar) – volatility.
N (scalar) – number of time segments. A higher number of segments will increase accuracy at the cost of computation time.
- Returns:
c (Mx1 vector) – call premiums.
Examples¶
S0 = 718.46;
K = { 720, 725, 730 };
r = .0498;
sigma = .2493;
t0 = dtday(2001, 1, 30);
t1 = dtday(2001, 2, 16);
tau = elapsedTradingDays(t0, t1) /
annualTradingDays(2001);
c = AmericanBinomCall(S0, K, r, 0, tau, sigma, 60);
print c;
produces the output:
17.246407
14.973715
12.745272
Remarks¶
The binomial method of Cox, Ross, and Rubinstein (“Option pricing: a simplified approach,” Journal of Financial Economics, 7:229:264) as described in Options, Futures, and other Derivatives by John C. Hull is the basis of this procedure.
Source¶
finprocs.src