Multi-Period Binomial Option Pricing

A set of MATLAB functions for calculating option prices, along with several examples of how the functions can be used.

Developed from theory presented in Option Trading by Euan Sinclair.

The function "permn.m" is copyright (c) 2016, Jos van der Geest: permn - Mathworks.com.

Initialization

clear
clc
addpath(genpath('functions'))

Adjusting parameters

r = 0.03; % override defaults
sigma = 0.28;
run loadParams  % run after setting parameters

parameters =

  6×1 table

               Parameters
               __________

    periods          3   
    time             1   
    spot           100   
    strike         100   
    rate          0.03   
    sigma         0.28 

Example queries

opt_tod = optionToday(o_prm, call);
fprintf('Call today:\n\n')
disp(opt_tod)

Call today:

   13.4163

put_tod = optionToday(o_prm, put);
fprintf('Put today:\n\n')
disp(put_tod)

Put today:

    10.4609

asset_tr = assetTree(s_prm);
fprintf('Asset tree:\n\n')
disp(asset_tr)

Asset tree:

  100.0000  117.5458  138.1702  162.4133
         0   85.0732  100.0000  117.5458
         0         0  100.0000  117.5458
         0         0   72.3745   85.0732
         0         0         0  117.5458
         0         0         0   85.0732
         0         0         0   85.0732
         0         0         0   61.5713

Trees are organized so that the element (i,j) in row i and column j branches into elements (2i,j+1) and (2i-1,j+1). Elements with i > 2^(j-1) are unused and ignored.

Example plots

Call and put values plotted against a varying risk-free rate, strike price and spot price. Generated by ExamplePlot.m.