Hi,Here is my updated code for DK implied tree, with two corrections for the negative probabilities along with asd's print tree function. Gives good prices by using Black Scholes formula rather than CRR tree. Regards,khairoo

<t>Hi asd,Thanks very much for pointing out the mistake in AD price calculation. I have fixed that. And now it is working reasonably for the example I had chosen. Though it still gives trouble for some other cases.About what you said about c<d, i think the forward rate check of B&C which is to t...

<t>Hi,Thanks very much for the tips as well as the code. The output format is great . There was a small problem in incrementing the index, the code was printing the first value above the spine for all values above it at odd levels.I used a CRR tree price instead of the BS formula... doesn't work I s...

Hi,Does anyone know a package to draw binomial trees (side ways growing) as used in finance using latex?Thanks

<t>Thanks spursfan.I tried building the forward tree too. It reduces the negative probabilities but not by much as soon as I go past 15 time steps for a one year option I am pricing the negative probabilities show up again. Now I have used D&K tree again but while correcting the nodes not fallin...

<t>Hi,I have implemented Derman and Kani implied tree code in C. The problem is that as I increase the number of time steps over 10, I start getting negative probabilities for some nodes which then spoil the results for later ones too. I have incorporated the condition that a node should be between ...

<t>Thankyou Johnny,I am a student of the field and that too a new one so please dont mind my ignorance to practical issues. I take a linear form of the market implied volatility curve given by:Vimp = Vatm + Alpha log(S_0/S_K) / sqrt(T)This gives me a downward sloping implied volatility curve. I can ...

Is there a way to build trees to price options if my local volatility process is non-markovian i.e volatility is give byV(t,S_t, S_g) where g = t-constant, if t>constant g = zero otherwiseCan a transformation into two dimensions help?Thanks...

Thanks very much

Hi,Paul Wilmot on Quantitative Finance (Vol 1, Ch 25, Eq 25.7) gives a formula for local volatility in terms fo Implied Volatility. Can anyone please point me to a derivation of this formula?Thanks

Thanks

I dont know if we are getting each other. I want a recombining tree. Let me ask a more straight forward question. For a given local volatility surface (rather than an implied volatility surface) how can I build a recombining binomial tree?

<t>Hi,I have a deterministic local volatility function of the form:sigma(S, t) = Vatm + A*( log(So/St) + log(Sg/St) )Vatm = at the money volA = constantSo = Asset Price at time=0St = Asset Price at Current time tSg = Asset Price at a time g at a fixed lag from current time (say 6 months) i.e , g=0.5...

Thankyou very much Avt, Aaron and chika. I spotted a mistake (albeit very stupid one) I wasn't using the correct dividend value.chika: I used the formula in the report you gave. After fixing the error both your formula and wilmott's work fine

<t>I am sorry about the ambiguity of the description and notation. The equation I am refering to in PW is 25.7 (PW on QF Vol 1, Ch25 Volatility smiles and surfaces) In the Implied Volatility function that I have given there are upper and lower cutoff limits say 1 and 0.05 that keeps it defined. At t...