Financial Derivatives Toolbox™

ittprice - Price instruments using implied trinomial tree (ITT)

Syntax

Price = ittprice(ITTTree, InstSet)
Price = ittprice(ITTTree, InstSet, Options)
[Price, PriceTree] = ittprice(ITTTree, InstSet, Options)

Arguments

Description

Price = ittprice(ITTTree, InstSet)

Price = ittprice(ITTTree, InstSet, Options)

[Price, PriceTree] = ittprice(ITTTree, InstSet, Options)

The outputs for ittprice are:

• Price is a NINST-by-1 vector of prices of each instrument at time 0. The prices are computed by backward dynamic programming on the stock tree. If an instrument cannot be priced, a NaN is returned in that entry.

• PriceTree is a structure containing trees of vectors of instrument prices and a vector of observation times for each node.

  • PriceTree.PTree contains the prices.

  • PriceTree.tObs contains the observation times.

  • PriceTree.dObs contains the observation dates.

ittprice computes prices for instruments using an implied trinomial tree created with itttree.

Note   ittprice handles the following instrument types: optstock, barrier, Asian, lookback, and compound. Use instadd to construct the defined types.

When using an implied trinomial tree, pricing of path-dependent options is done using Hull-White. Consequently, for these options there are no unique prices on the tree nodes with the exception of the root node. The corresponding nodes of the tree are populated with NaNs for these particular options. For information on single-type pricing functions to retrieve state-by-state pricing tree information, see the following:

• barrierbyitt for pricing barrier options using an ITT tree

• optstockbyitt for pricing American, European or Bermuda options using an ITT tree

• asianbyitt for pricing Asian options using an ITT tree

• lookbackbyitt for pricing lookback options using an ITT tree

• compoundbyitt for price compound options using an ITT tree

Examples

Load the ITT tree and instruments from the data file deriv.mat.

load deriv.mat

Price the barrier and Asian options contained in the instrument set.

ITTSubSet = instselect(ITTInstSet,'Type', {'Barrier', 'Asian'}); 

instdisp(ITTSubSet)

instdisp(ITTSubSet)
Index Type OptSpec Strike Settle ExerDates AmerOpt BarrSpec Barr Rebate Name Quantity
1   Barrier call    85   01-Jan-2006  31-Dec-2008    1       ui    115     0  Barrier1 1
 
Index Type OptSpec Strike Settle ExerDates AmerOpt AvgType AvgPrice AvgDate Name Quantity
2    Asian call    55   01-Jan-2006   01-Jan-2008   0    arithmetic NaN    NaN   Asian1  5
3    Asian call    55   01-Jan-2006   01-Jan-2010   0    arithmetic NaN    NaN   Asian2  7
 
[Price, PriceTree] = ittprice(ITTTree, ITTSubSet)

Price =
    2.4074
    3.2052
    6.6074
PriceTree = 
    FinObj: 'TrinPriceTree'
     PTree: {[3x1 double]  [3x3 double]  [3x5 double]  [3x7 double]  [3x9 double]}
      tObs: [0 1 2 3 4]
      dObs: [732678 733043 733408 733773 734139]

See Also

ittsens, itttree

isafin

ittsens