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2008-06-19Diskussionspapier DOI: 10.18452/4134
Numerics of Implied Binomial Trees
dc.contributor.authorHärdle, Wolfgang Karl
dc.contributor.authorMysickova, Alena
dc.date.accessioned2017-06-15T23:44:02Z
dc.date.available2017-06-15T23:44:02Z
dc.date.created2008-07-02
dc.date.issued2008-06-19
dc.identifier.issn1860-5664
dc.identifier.urihttp://edoc.hu-berlin.de/18452/4786
dc.description.abstractMarket option prices in last 20 years confirmed deviations from the Black and Scholes (BS) models assumptions, especially on the BS implied volatility. Implied binomial trees (IBT) models capture the variations of the implied volatility known as \volatility smile". They provide a discrete approximation to the continuous risk neutral process for the underlying assets. In this paper, we describe the numerical construction of IBTs by Derman and Kani (DK) and an alternative method by Barle and Cakici (BC). After the formation of IBT we can estimate the implied local volatility and the state price density (SPD). We compare the SPD estimated by the IBT methods with a conditional density computed from a simulated diffusion process. In addition, we apply the IBT to EUREX option prices and compare the estimated SPDs. Both IBT methods coincide well with the estimation from the simulated process, though the BC method shows smaller deviations in case of high interest rate, particularly.eng
dc.language.isoeng
dc.publisherHumboldt-Universität zu Berlin, Wirtschaftswissenschaftliche Fakultät
dc.rights.urihttp://rightsstatements.org/vocab/InC/1.0/
dc.subjectImplied Volatilityeng
dc.subjectImplied Tree Modelseng
dc.subjectLocal Volatilityeng
dc.subjectOption Pricingeng
dc.subject.ddc330 Wirtschaft
dc.titleNumerics of Implied Binomial Trees
dc.typeworkingPaper
dc.identifier.urnurn:nbn:de:kobv:11-10089725
dc.identifier.doihttp://dx.doi.org/10.18452/4134
local.edoc.pages27
local.edoc.type-nameDiskussionspapier
local.edoc.container-typeseries
local.edoc.container-type-nameSchriftenreihe
local.edoc.container-year2008
dc.identifier.zdb2195055-6
bua.series.nameSonderforschungsbereich 649: Ökonomisches Risiko
bua.series.issuenumber2008,44

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