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May 20

Binomial tree for American option

Posted by abiao at 16:26 | Code » Matlab | Comments(0) | Reads(12937)
This is a follow up post of my previous entry Nine Ways to Implement Binomial Tree Option Pricing because the latter covers European option only. Compared with pricing American option by Crank-Nicholson finite difference or American Options via least square Monte Carlo Simulation, Binomial tree is the easiest to implement, what you need to do is just adding a MAX expression on every node of your tree.

Here is a paper on the implementation of binomial tree methods for the pricing of American option' value and Greeks, matlab codes can be found in the paper or separately here.

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