Price stock option from Equal Probabilities binomial tree
[Price, PriceTree] = optstockbyeqp(EQPTree,
OptSpec, Strike,Settle, ExerciseDates, AmericanOpt)
Stock tree structure created by eqptree.
Number of instruments (NINST)-by-1 cell array of strings 'call' or 'put'.
European option: NINST-by-1 vector of strike price values.
Bermuda option: NINST by number of strikes (NSTRIKES) matrix of strike price values.
Each row is the schedule for one option. If an option has fewer than NSTRIKES exercise opportunities, the end of the row is padded with NaNs.
American option: NINST-by-1 vector of strike price values for each option.
NINST-by-1 vector of settlement or trade dates.
NINST-by-1 (European option) or NINST-by-NSTRIKES (Bermuda option) matrix of exercise dates. Each row is the schedule for one option. For a European option, there is only one exercise date, the option expiry date.
For an American option:
NINST-by-2 vector of exercise date boundaries. For each instrument, the option can be exercised on any coupon date between or including the pair of dates on that row. If only one non-NaN date is listed, or if ExerciseDates is NINST-by-1, the option can be exercised between the underlying bond Settle and the single listed exercise date.
Data arguments are NINST-by-1 vectors, scalar, or empty. Fill unspecified entries in vectors with NaN. Only one data argument is required to create the instrument. The others may be omitted or passed as empty matrices .
Price is a NINST-by-1 vector of expected option prices at time 0.
PriceTree is a tree structure with a vector of instrument prices at each node.
Price a stock option using an EQP equity tree.
Load the file deriv.mat, which provides EQPTree. The EQPTree structure contains the stock specification and time information needed to price the option.
Set the required values. Other arguments will use defaults.
OptSpec = 'Call'; Strike = 105; Settle = '01-Jan-2003'; ExerciseDates = '01-Jan-2005'; Price = optstockbyeqp(EQPTree, OptSpec, Strike, Settle, ... ExerciseDates)
Price = 8.4791