OPT_BINOMIAL

OPT_BINOMIAL theoretical price of either an American or European style option using a binomial tree

Synopsis

OPT_BINOMIAL(amer_euro_flag,call_put_flag,num_time_steps,spot,strike,time,rate,volatility,cost_of_carry)

Arguments

amer_euro_flag: 'a' for an American style option or 'e' for a European style option

call_put_flag: 'c' for a call and 'p' for a put

num_time_steps: number of time steps used in the valuation

spot: spot price

strike: strike price

time: time to maturity in years

rate: annualized risk-free interest rate

volatility: annualized volatility of the asset

cost_of_carry: net cost of holding the underlying asset

Note

A larger num_time_steps yields greater accuracy but OPT_BINOMIAL is slower to calculate.