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Binomial Model
Suppose I am given the local vol surface (i.e for each combination of the stock price and time I know the value of the volatility). How do I find the risk neutral probability for the up and down move in the binomial model (to price an American Option)? Please let me know if the question is a little vague and you need more information.
Binomial Model
What IBT method are you trying to use: Rubinstein (1994), Derman and Kani, Barle and Cakici, etc. ? [Added 8:15pm]For example if Derman and Kani then the probability would be given by equation 7.5 in this page..
Last edited by acastaldo on April 16th, 2010, 10:00 pm, edited 1 time in total.
Binomial Model
After a good night sleep I think I had misunderstood the question.