Here is an spreadsheet example of pricing a European call option on a stock index (e.g., Dow Jones Utility) with a two step binomial. There are two basic process steps: 1. Build forward the "tree" of asset prices, 2. Then backward induction: value the option at each node as the PROBABILITY-adjusted, discounted value of nodes after it.
david, u should get as much credit as sal khan. u r god.
formchoi2190 2 months ago 2
doing this right now!!! in exam on Thursday......
littlejupiter89 8 months ago
The option gonna be exercised in 0.25 year or 3 months, we don't need the price at t=0.5, you overpriced the option. Change the exercised date to 0.5 to make this whole thing right.
k3nu0t 10 months ago
what is the a?
siofraod 11 months ago
David..You Rock Man!! My FRM Guru :)
samkaz321 1 year ago
@humayunrali i guess its just a rounding up error.
ThePsyclopz 1 year ago
god bless you, david! :)
OtherUniverse 1 year ago
Calculation at node 2 is not adding up, kindly check the formula.
Regards
humayunrali 1 year ago
Thank you! You've saved me. My exam is tomorrow and I can work through these problems now.
Loserbethy 1 year ago
hi... good one... can you kindly upload the xls file as well
srpollaa 2 years ago