Keywords - Function groups - @ A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Library: finance
See also: ITTad ITTnewnodes ITT bitree grITTcrr

Quantlet: ITTcrr
Description: builds up a constant-volatility trinomial tree and computes the option price of a given option with a given strike price

Usage: {ttree,optprice}=ITTcrr(S,K,r,sigma,time,opt,div)
Input:
S scalar; the spot price of the underlying
K scalar; the exercise price
r scalar; the CONTINUOUS interest rate from interval (0,1)
sigma scalar; constant volatility
time t x 1 vector; the time points
opt scalar; 1 for a call option or 0 for a put option
div scalar; the dividend rate from interval (0,1)
Output:
ttree matrix; the constant volatility trinomial tree - possible values of the stock price are in the upper "triangular".
optprice scalar; the price of given option

Note:

Example:
library("finance")
library("graphic")
S = 100         ; current index level
K = 120         ; strike price
r = 0.1         ; compounded riskless interest rate
sigma = 0.2     ; constant volatility
time = 0|1|3|6  ; time vector
opt = 1         ; call option
div = 0.05      ; dividend yield
t=ITTcrr(S, K, r, sigma, time, opt, div)
t.optprice	   ; show the option price
tr=grITTcrr(t.ttree,time,0|0,1,2)
d=createdisplay(1,1)
show(d,1,1,tr)

Result:
Contents of optprice
[1,]   14.992

A display of a trinomial tree with constant logarithmic spacing
is returned additionally.



Author: K. Komorad, W. Haerdle, 20020126 license MD*Tech
(C) MD*TECH Method and Data Technologies, 05.02.2006