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Sheila Farrahi Amirhossein Heydarizadeh Oluwayinka Ogunniyi.

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Presentation on theme: "Sheila Farrahi Amirhossein Heydarizadeh Oluwayinka Ogunniyi."— Presentation transcript:

1 Sheila Farrahi Amirhossein Heydarizadeh Oluwayinka Ogunniyi

2  Like Bermudian islands which are located between Europe and America, Bermudan options are a combination of American and European options.  Bermudan option is a type of option which can only be exercised at specific dates between the issue date and maturity.

3  Binomial model is a very popular model for option pricing, Binomial tree shows different ways that stock price can move during option’s life time based on certain probability of moving up or either down.

4  Cox-Ross-Rubenstein formula is the most common formula for the binomial tree so in our model we used Cox-Ross-Rubenstein formulas.

5  European put and call option at the final nodes:  Other nodes:

6  American put and call option at the final nodes:  Other nodes:

7  Consider a 6-step binomial tree with T=1.5 year and the Bermudan option can only be exercised once a year.


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