Pricing options via Binomial Trees in R

European, American, Chooser, Knock-Out, Average Strike

Examples of pricing: view examplesBinomTree.html in browser

The examplesBinomTree.html was generated by: examplesBinomTree.Rmd

Instructions:

The getBinomTree function returns a data frame having the binomial tree mapped into it. The first row contains the root node information with option price in df$P[1].

getBinomTree(S0, K, vol, dT, r, qdiv, N_steps, isPut=F, isAmerican=F, 
   isAvgStrike=F, isKO=F, isChooser=F, H=NA, Kc=NA, Kp=NA, choose_t1=NA)

with the standard inputs for European and American options:

• S0: underlying asset price at t=0 (e.g. 100)
• K: strike (e.g. 105)
• vol: volatility (e.g. 0.15 for 15%)
• dT: time to maturity (years) (e.g. 1)
• r: risk-free rate (e.g. 0.05)
• qdiv: dividend rate
• N_steps: number of time steps in tree (# levels = N_steps + 1 at root)
• isPut: F:Call, T:Put
• isAmerican: F:European, T:American

and additional inputs for exotic options:
average strike:

• isAvgStrike: is average strike options

knock-out:

• isKO: is knock-out option
• H: barrier strike for knock-out

chooser:

• isChooser: is chooser option
• Kc: call strike for chooser option
• Kp: put strike for chooser option
• choose_t1: time to choose for chooser option

For convenience the getBinomTree function has several "envelope" functions:

• average strike: getBinomTree.avgK(S0, K, vol, dT, r, qdiv, N_steps, Kc, Kp, choose_t1)
• knock-out: getBinomTree.ko(S0, K, vol, dT, r, qdiv, N_steps, isPut, H)
• chooser: getBinomTree.avgK(S0, vol, dT, r, qdiv, N_steps, isPut)