Hello, I had a quick question regarding the CRR Binomial program in R: Does this program apply the backwards numerical procedure for valuing American call options if I choose the "ca" as typeflag, i.e. at each node of constructing the option tree backwards, the algorithm chooses between the maximum of the discounted call values of the subsequent up and down moves and the intrinsic value? Thank you, John Bucci
foptions package
4 messages · jmbucci@stat.ucla.edu, Dirk Eddelbuettel, Krishna Kumar
John,
On 11 November 2005 at 10:20, jmbucci at stat.ucla.edu wrote:
| Hello, | | I had a quick question regarding the CRR Binomial program in R: | | Does this program apply the backwards numerical procedure for valuing | American call options if I choose the "ca" as typeflag, i.e. at each node | of constructing the option tree backwards, the algorithm chooses between | the maximum of the discounted call values of the subsequent up and down | moves and the intrinsic value? Unless you hear from Diethelm, your best bet is probably do go digging in the source code itself. Regards, Dirk
Statistics: The (futile) attempt to offer certainty about uncertainty.
-- Roger Koenker, 'Dictionary of Received Ideas of Statistics'
I am attaching a little function I wrote which does the LR/CRR/JR trees it also does the Binomial with Blackscholes 2-point richardson extrapolation with a BS adjustment at the penultimate step (Broadie-DeTempleton) particularly good for getting smooth greeks. Hope this helps, Best, Kris ps: It is ugly and not well documented is there a R standard for naming variables etc?
jmbucci at stat.ucla.edu wrote:
Hello, I had a quick question regarding the CRR Binomial program in R: Does this program apply the backwards numerical procedure for valuing American call options if I choose the "ca" as typeflag, i.e. at each node of constructing the option tree backwards, the algorithm chooses between the maximum of the discounted call values of the subsequent up and down moves and the intrinsic value? Thank you, John Bucci
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I forgot to mention a few things
Function description
(i) optionvalue.euro - this does CRR/LR/JR trees
(ii) greek.binomial - this is based on Pelseer/Vorst ("The Binomial
Model and the Greeks." /Journal of Derivatives/, Spring 1994, 45-49 )
(iii) optionvalue.amer - american option pricing using CRR/LR/JR
(iv) optionvalue.bbs - Broadie-Detempleton adjustment to the tree (2 pt
richardson extrapolation + BS at penultimate)
*See American Option Valuation: New Bounds, Approximations, and a
Comparison of Existing Methods*
(http://rfs.oupjournals.org/cgi/reprint/9/4/1211)
My favorite among these is the LR tree the original paper is here
(http://www.wiwi.uni-bonn.de/sfb/papers/1995/b/bonnsfb309.pdf)
Krishna Kumar wrote:
I am attaching a little function I wrote which does the LR/CRR/JR trees it also does the Binomial with Blackscholes 2-point richardson extrapolation with a BS adjustment at the penultimate step (Broadie-DeTempleton) particularly good for getting smooth greeks. Hope this helps, Best, Kris ps: It is ugly and not well documented is there a R standard for naming variables etc?