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Numerically speaking

Binomial option pricing

 

1. Introduction

The derivation of the Black-Scholes equation is described elsewere (see e.g. the links below). Here I implemented the solution for option pricing as a Windows program.

In [1] L. Wu extremely clear presented three approaches to option valuation using binomial trees:

  1. Delta hedging
  2. Portfolio replication
  3. Risk-neutral valuation

I also used Refs [2] and [3].

Program

 I implemented the binary tree algorithm using my libraries.

 Info 

 

Prices

Plots

Feel free to download and play (at your own risk ).

I am adding several new features, please check later.

 

Downloads

Binomial option pricing (zipped exe).

Source code (Delphi 7 and up).

 

References

  1. Binomial Trees, by Liuren Wu. http://faculty.baruch.cuny.edu/lwu/890/890Lec4.pdf
  2. Jouni Kerman, Numerical Methods for Option Pricing: Binomial and Finite-difference Approximations.
  3. P. Wilmott, S. Howison, J. Dewynne. The mathematics of financial derivatives (Cambridge, 1996).

 

Links

 

© Nikolai Shokhirev, 2012-2017

email: nikolai(dot)shokhirev(at)gmail(dot)com

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