https://gdpark.blog/tags/binomial-model/Recent content in Binomial Model on gdpark.blogHugoenThu, 15 Dec 2016 00:00:00 +0000https://gdpark.blog/posts/financial-engineering-03-put-call-parity/Wed, 07 Sep 2016 00:00:00 +0000https://gdpark.blog/posts/financial-engineering-03-put-call-parity/Before jumping into the binomial model, we lock in put-call parity — the neat reason knowing a European call’s price automatically pins down its put, and vice versa.https://gdpark.blog/posts/financial-engineering-04-binomial-model-one-period/Mon, 03 Oct 2016 00:00:00 +0000https://gdpark.blog/posts/financial-engineering-04-binomial-model-one-period/Breaking down the one-period Binomial Model — where stock prices only go up or down — and using that to price a call option with a risk-free portfolio.https://gdpark.blog/posts/financial-engineering-05-binomial-model-two-period/Mon, 03 Oct 2016 00:00:00 +0000https://gdpark.blog/posts/financial-engineering-05-binomial-model-two-period/We crank through the two-period binomial model one step at a time, build up the call price formula, and peek at how it naturally generalizes to n periods — heh heh.https://gdpark.blog/posts/financial-engineering-06-binomial-model-generalized-n-period/Mon, 03 Oct 2016 00:00:00 +0000https://gdpark.blog/posts/financial-engineering-06-binomial-model-generalized-n-period/We tackle the scary-looking generalized n-period binomial formula and break it down piece by piece — p, u, d, sigma notation and all.https://gdpark.blog/posts/financial-engineering-07-american-options/Mon, 03 Oct 2016 00:00:00 +0000https://gdpark.blog/posts/financial-engineering-07-american-options/Breaking down the one chunky difference between American and European options — early exercise — and how it flips the whole binomial pricing tree on its head.https://gdpark.blog/posts/derivatives-15-binomial-option-pricing-model-basics/Wed, 14 Dec 2016 00:00:00 +0000https://gdpark.blog/posts/derivatives-15-binomial-option-pricing-model-basics/A copy-paste deep dive into the binomial option pricing model — covering one-period basics, risk-free portfolios, and how to pin down a call option’s theoretical price.https://gdpark.blog/posts/derivatives-16-deriving-the-black-scholes-formula-from-the-binomial-model/Thu, 15 Dec 2016 00:00:00 +0000https://gdpark.blog/posts/derivatives-16-deriving-the-black-scholes-formula-from-the-binomial-model/Turns out if you just crank n to infinity in the binomial model, the Black-Scholes formula pops right out — so let’s do exactly that instead of going the hard way.