Presentation on theme: "Bermudan Options with the Binomial Model"— Presentation transcript:
1 Bermudan Options with the Binomial Model Sheila FarrahiAmirhossein HeydarizadehOluwayinka Ogunniyi
2 Bermudan OptionLike 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 ModelBinomial 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 Binomial ModelCox-Ross-Rubenstein formula is the most common formula for the binomial tree so in our model we used Cox-Ross-Rubenstein formulas.
5 European Options European put and call option at the final nodes: Other nodes:
6 American Options American put and call option at the final nodes: Other nodes:
7 Bermudan Option with Binomial Model Consider a 6-step binomial tree with T=1.5 year and the Bermudan option can only be exercised once a year.