April 2015
Intermediate to advanced
340 pages
7h 21m
English
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Binomial trees in options pricing
In the binomial options pricing model, the underlying security at one time period, represented as a node with a given price, is assumed to traverse to two other nodes in the next time step, representing an up state and a down state. Since options are derivatives of the underlying asset, the binomial pricing model tracks the underlying conditions on a discrete-time basis. Binomial option pricing can be used to value European options, American options, as well as Bermudan options.
The initial value of the root node is the spot price 
of the underlying security with a given probability of returns should its value increase, ...
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