Crate binomial_tree

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