XploRe Help : grITTspd

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:	grITTcrr grITTstsp ITT plotITT regest

Quantlet:		grITTspd
Description:		generates a state price density of an implied trinomial tree

Reference(s):

Derman, E., Kani, I. and Chriss, N. (1996). Implied Trinomial Trees of the Volatility Smile. Journal of Derivatives, 4, pp. 7-22. Komorad, K. (2002). Implied Trinomial Trees and Their Implementation with XploRe.

Usage:	`dat=grITTspd(ttree,ad,r,time)`
Input:
	`ttree`	matrix; implied trinomial tree corresponds to the output of ITT(.)
	`ad`	matrix; Arrow-Debreu price corresponds to the output of ITT(.)
	`r`	scalar; interest rate from interval (0,1)
	`time`	T x 1 vector; time points corresponding to ttree
Output:
	`dat`	n x 2 matrix; coordinates of the density curve

Note:

the state price density is estimated using the quantlet regest(.)

Example:

library("finance") library("smoother") library("graphic") proc(sigma)=volafunc(S,K,time) sigma=0.15 +(S-K)/10 * 0.005 endp S = 100 ; current index level r = 0.1 ; compounded riskless interest rate div = 0.05 ; dividend yield time = 0|1|3|6 ; time vector t=ITT(S, r, div, time, "volafunc") spd=grITTspd(t.Ttree,t.AD,r,time) d=createdisplay(1,1) show(d,1,1,spd)

Result:

A plot showing points of the estimated density curve.

Author: K. Komorad, W. Haerdle, 20020319 license MD*Tech