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# 0r inverse of interest rate double u

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Unformatted text preview: the binomial option formula. The understanding of the binomial formula is usually much improved by actually implementing it on a computer. To help those of you who are trying to do so, we show an example of how a typical computer algorithm for a binomial price is implemented. First, a remark on the up and down movements. The standard way of ﬁnding these from the volatility of the underlying asset, the time to maturity and the number of periods in the binomial approximation, is as follows A sample implementation in C++ is given below. The computer algorithm for a binomial above merits some comments. There is only one vector of call prices, and one may think one needs two, one at time and another at time . (Try to write down the way you would solve it before looking at the given algorithm.) But by using the fact that the branches reconnect, it is possible to get away with the given algorithm, using one less array. You may want to check how this works. It is also a useful way to make sure one understands binomial option pricing. 142 Multiple Periods in the Binomial Option Pricing Model Fig...
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## This document was uploaded on 02/15/2014 for the course BEM 103 at Caltech.

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