Bin_Opt_pricing_A_E

A B C D E F G
1 AMERICAN BINOMIAL OPTION PRICING IN EXCEL
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3 S 60 Current stock price
4 X 60 Option exercise price
5 T 0.5000 Time to option exercise (in years)
6 r 8% Annual interest rate
7 Sigma 30% Riskiness of stock
8 n 50 Number of subdivisions of T
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10 American put price #VALUE! <-- =AmericanPut(S,X,T,interest,sigma,n)
11 American call price #VALUE! <-- =AmericanCall(S,X,T,interest,sigma,n)
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13 European put price #VALUE! <-- =EurPut(S, X,T,interest,sigma,n)
14 European call price #VALUE! <-- =EurCall(S, X,T,interest,sigma,n)
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16 Put-call parity?
17 Delta t, Dt 0.0100 <-- =B5/B8
18 R = erDt 1.0008 <-- =EXP(B6*B17)
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20 American put + Stock #VALUE! <-- =B10+B3
21 American call + Bond #VALUE! <-- American call price+X/R^n
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23 European put + Stock #VALUE! <-- =B13+B3
24 European call + Bond #VALUE! <-- European call price+X/R^n

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 Bin_Opt_pricing_A_E

H I J K L M N
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2 delta_t = T / n
3 up = Exp(sigma * Sqr(delta_t))
4 down = Exp(-sigma * Sqr(delta_t))
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 A B C D E F G
1 CONVERGENCE OF BINOMIAL TO BLACK-SCHOLES
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3 S 60 Current stock price
4 X 50 Option exercise price
5 T 0.5000 Time to option exercise (in years)
6 r 8% Annual interest rate
7 Sigma 30% Riskiness of stock
8 n 20 Number of subdivisions of T
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10 European binomial call price #VALUE! <-- =EurCall(S, X,interest,sigma,T,n)
11 European binomial put price #VALUE! <-- =EurPut(S, X,interest,sigma,T,n)
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13 Black-Scholes call price #VALUE! <-- =BSCall(S, X,interest,sigma,T)
14 Black-Scholes put price #VALUE! <-- =BSPut(S, X,interest,sigma,T)
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16 Data table: As n gets large,
17 binomial price -> Black-Scholes
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19 Binomial call Black-Scholes
20 #VALUE! <-- The data table header in cell C20
21 10 #VALUE! #VALUE!
22 50 #VALUE! #VALUE!
23 75 #VALUE! #VALUE!
24 100 #VALUE! #VALUE!
25 125 #VALUE! #VALUE!
26 150 #VALUE! #VALUE!
27 175 #VALUE! #VALUE!
28 200 #VALUE! #VALUE!
29 225 #VALUE! #VALUE!
30 n --> 250 #VALUE! #VALUE!
31 275 #VALUE! #VALUE!
32 300 #VALUE! #VALUE!
33 325 #VALUE! #VALUE!
34 350 #VALUE! #VALUE!
35 375 #VALUE! #VALUE!
36 400 #VALUE! #VALUE!
37 425 #VALUE! #VALUE!
38 450 #VALUE! #VALUE!
39 475 #VALUE! #VALUE!
40 500 #VALUE! #VALUE!
 H I J
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The data table20
header in cell C20 is hidden
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 Convergence of Binomial to Black-Scholes

12.0000

10.0000

8.0000

Binomial call
#VALUE!
Black-Scholes
6.0000

4.0000

2.0000

0.0000
0 50 100 150 200 250 300 350 400 450 500
n = number of subdivisions of T