高级公司金融Pricing Derivatives.pptVIP

First we assume the u’s and d’s are constant over time then we have same risk neutral probabilities at each period. This calculation is equivalent to that we work backward from the end to the beginning, which applies only to the European option. The option value at each intermediate node comes from replicating the future payoffs of the option. This is equivalent to assuming holding the option to future. Therefore American put value is 8.2. An investor will not exercise at beginning, will not exercise at the up node. But she will exercise at the down node. The advantage of binomial model is tha