Expand description
Binomial tree approach to pricing options. This approach is extremely general. It allows pricing of any style option when the underlying is a 1-dimensional diffusion. Currently only European and American optionality is provided but it isn’t difficult to add Bermudan optionality. The approach works by transforming a diffusion into a pure Brownian component and building a tree off the pure Browning component. Given a diffusion dX=alpha(X, t)dt+sigma(X, t)dW, the user must specify the function alpha(X, t)/sigma(X, t), the function sigma’(X, t) (the derivative of sigma with respect to X), and the inverse function of the indefinite integral of 1/sigma(y, t) with respect to y.
Functions§
- compute_
price_ american - Returns American option price using tree method
- compute_
price_ raw - Returns price using tree method
- get_
all_ t - Returns iterator over every t except the maturity
- get_dt
- Returns increment of t between time steps
- get_t
- Returns t at some time step