American Option Pricing with Binomial Model ...

blob · June 3rd, 2003, 11:07 am

Does somebody know how I can price an american option with binomial model ?Thanks a lot for your help.

FDAXHunter · June 3rd, 2003, 12:48 pm

Are there dividends on the the underlying? Hehehehehe..... Ok, enough horseing around:To use the Binominal tree on underlyings with dividends, you need to shift the tree "down" when the stock goes ex-div.This, however will make the tree non-recombining, if you simply substract the dividend amount from all nodes at that point.A quick-fix is to simply modify the the nodes by mutliplying by (1-DivYield) at the moment of pricing, but that will obviously become inaccurate for the nodes far away from S.Does this help?

blob · June 3rd, 2003, 1:14 pm

I consider an american swaption which I want to price with binomial model .....

DarrenW · June 4th, 2003, 8:33 pm

<a href='http://www.montegodata.co.uk/Consult/Pr ... p'>Various Models</a>Go and Download if you want, if useful and you want the source, find me via the site.D.