AmericanPutPriceBinomial function

Binomial Put Price

Estimates the price of an American Put, using the binomial approach.

AmericanPutPriceBinomial(stockPrice, strike, r, sigma, maturity, numberSteps)

Arguments

• stockPrice: Stock price of underlying stock
• strike: Strike price of the option
• r: Risk-free rate
• sigma: Volatility of the underlying stock and is in annualised term
• maturity: The term to maturity of the option in days
• numberSteps: The number of time-steps in the binomial tree

Returns

Binomial American put price

Examples

# Estimates the price of an American Put
   AmericanPutPriceBinomial(27.2, 25, .03, .2, 60, 30)

Author(s)

Dinesh Acharya

References

Dowd, Kevin. Measuring Market Risk, Wiley, 2007.

Lyuu, Yuh-Dauh. Financial Engineering & Computation: Principles, Mathematics, Algorithms, Cambridge University Press, 2002.