Financial Derivatives Toolbox™

crrtree - Construct CRR stock tree

Syntax

CRRTree = crrtree(StockSpec, RateSpec, TimeSpec)

Arguments

Note   The standard CRR tree assumes a constant interest rate, but RateSpec allows you to specify an interest-rate curve with varying rates. If you specify variable interest rates, the resulting tree will not be a standard CRR tree.

Description

CRRTree = crrtree(StockSpec, RateSpec, TimeSpec) creates a structure specifying the time layout for a CRR binomial tree.

Examples

Using the data provided, create a stock specification (StockSpec), rate specification (RateSpec), and tree time layout specification (TimeSpec). Then use these specifications to create a CRR tree with crrtree.

Sigma = 0.20;
AssetPrice = 50;
DividendType = 'cash';
DividendAmounts = [0.50; 0.50; 0.50; 0.50];
ExDividendDates = {'03-Jan-2003'; '01-Apr-2003'; '05-July-2003';
'01-Oct-2003'}

StockSpec = stockspec(Sigma, AssetPrice, DividendType, ...
DividendAmounts, ExDividendDates)

StockSpec = 

               FinObj: 'StockSpec'
                Sigma: 0.2000
           AssetPrice: 50
         DividendType: 'cash'
      DividendAmounts: [4x1 double]
      ExDividendDates: [4x1 double]

RateSpec = intenvset('Rates', 0.05, 'StartDates',...
'01-Jan-2003', 'EndDates', '31-Dec-2003')

RateSpec = 

           FinObj: 'RateSpec'
      Compounding: 2
             Disc: 0.9519
            Rates: 0.0500
         EndTimes: 1.9945
       StartTimes: 0
         EndDates: 731946
       StartDates: 731582
    ValuationDate: 731582
            Basis: 0
     EndMonthRule: 1

ValuationDate = '1-Jan-2003';
Maturity = '31-Dec-2003';
TimeSpec = crrtimespec(ValuationDate, Maturity, 4)

TimeSpec = 

           FinObj: 'BinTimeSpec'
    ValuationDate: 731582
         Maturity: 731946      
       NumPeriods: 4
            Basis: 0
     EndMonthRule: 1
             tObs: [0 0.2493 0.4986 0.7479 0.9972]
             dObs: [731582 731673 731764 731855 731946]

CRRTree = crrtree(StockSpec, RateSpec, TimeSpec)

CRRTree = 

       FinObj: 'BinStockTree'
       Method: 'CRR'
    StockSpec: [1x1 struct]
     TimeSpec: [1x1 struct]
     RateSpec: [1x1 struct]
         tObs: [0 0.2493 0.4986 0.7479 0.9972]
         dObs: [731582 731672 731763 731856 731946]
        STree: {1x5 cell}
      UpProbs: [0.5370 0.5370 0.5370 0.5370]

Use treeviewer to observe the tree you have created.

See Also

crrtimespec, intenvset, stockspec

crrtimespec

cvtree