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A Binomial Tree to Price European and American Options

Author

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  • Brogi, Athos

Abstract

A martingale pricing changing volatility binomial tree modeling the negative correlation between returns and volatility is presented and implemented. Matlab code implementing the tree is provided, as well as pricing examples.

Suggested Citation

  • Brogi, Athos, 2016. "A Binomial Tree to Price European and American Options," MPRA Paper 74962, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:74962
    as

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    File URL: https://mpra.ub.uni-muenchen.de/74962/1/MPRA_paper_74962.pdf
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    File URL: https://mpra.ub.uni-muenchen.de/116950/1/MPRA_paper_116950.pdf
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    References listed on IDEAS

    as
    1. Brogi, Athos, 2010. "A binomial tree to price European options," MPRA Paper 33604, University Library of Munich, Germany, revised Aug 2011.
    2. Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Arbitrage; kurtosis; martingale; option; risk-neutral; skewness; volatility;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • G1 - Financial Economics - - General Financial Markets
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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