Recombining Binomial model. The state price deflator approach

10 Novembro 2020, 11:30 • João Guerra

Recombining Binomial model. 

Example of princing an American put option with a 3-period Binomial model. 

The calibration of a recombining Binomial model by using the lognormal (geometric Brownian motion) model. 

The state price deflator or stochastic discount approach.

 

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Pricing with the Binomial model

5 Novembro 2020, 11:30 • João Guerra

Option and derivatives pricing with a 2-period Binomial model. Example. 

Option and derivatives pricing with a general n-period binomial model. 

Option and derivatives pricing with a recombining binomial model. Computational efficiency of a recombining binomial model. 

How to price an American option with the recombining binomial model. 

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Binomial model

3 Novembro 2020, 11:30 • João Guerra

The one period Binomial model.

Risk neutral measure. 

Example. 

The two-period Binomial model. 

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Option prices lower and upper bounds and put call parity

29 Outubro 2020, 11:30 • João Guerra

Lower and upper bounds for European and American option prices. 

Put Call parity relationship.

Discussion of some exercises and examples. 

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Complete markets. Forward contracts and futures contracts

27 Outubro 2020, 11:30 • João Guerra

An example of using put options in a hedging strategy. 

Terminology: Self-financing portfolios and replicating portfolios. 

Complete markets: theoretical concept. 

Forward contracts and futures contracts. Forward price. 

Exercises. 

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