3 early exercise of puts in the binomial model with

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Unformatted text preview: lculated ✟ ✟✟ ✟✟ ❍ ❍❍ ✯ ✟ ✟✟ ❍ ❍❍ ❍ ❥ ❍ and we use these period 1 values to find the time 0 call price The price of the call is 14.62. 15.2 The Binomial Formula and the Black Scholes Model The pricing formula that this produces when the number of periods increases to say is the so-called binomial option pricing model. It would not be appropriate to write down the -period formula here. It would be in a specialized options or advanced corporate finance text. For those interested in it, let us merely note that the numbers one produces with the binomial pricing formula are almost identical to those of the famous Black-Scholes model. Of course, this assumes that one picks and in a way that is related to the stock’s volatility (as we did in Chapter 12). The volatility is the single most important parameter in the Black-Scholes formula. 138 Multiple Periods in the Binomial Option Pricing Model 15.3 Early Exercise of Puts in the Binomial Model With binomial trees, it is easy to determine early ex...
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This document was uploaded on 02/15/2014 for the course BEM 103 at Caltech.

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