Mastering Python for Finance - Second Edition

A class for the trinomial lattice option pricing model

In Python, let's create a class named TrinomialLattice for the trinomial lattice implementation that inherits from the TrinomialTreeOption class.

Just as we did for the BinomialCRRLattice class, the setup_parameters, init_stock_price_tree, init_payoffs_tree, and check_early_exercise methods are overwritten, without having to take into account the payoffs at odd nodes:

In [ ]:    import numpy as np    """     Price an option by the trinomial lattice     """    class TrinomialLattice(TrinomialTreeOption):        def setup_parameters(self):            super(TrinomialLattice, self).setup_parameters()            self.M = 2*self.N + 1        def init_stock_price_tree(self):            self.STs = np.zeros(self.M) self.STs[0] = self.S0 * self.u**self.N ...