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  1. Nicole Seaman

    YouTube T4-09: Binomial option pricing model for equity index, currencies, and futures options

    Using a three-step binomial to price "options on other assets" (Hull 13.11 10th edition): equity index option, currency options and futures options (aka, options on futures contracts). The key difference is the calculation of p = probability of an up jump. For options on dividend-paying assets...
  2. Nicole Seaman

    YouTube T4-07: Binomial option pricing model: up/down jumps based on volatility

    Instead of arbitrarily selecting the up (u) and down (d) jumps in the binomial, we can "match them to a volatility input assumption, σ. The correct values are given by u = exp[σ*sqrt(Δt)] and d = 1/u; notice that the exponent is just apply the Square Root Rule (SRR) of scaling the per annum...
  3. Nicole Seaman

    YouTube T4-06: Introduction to binomial option pricing model: two-step

    The binomial option pricing model needs: 1. A set of assumptions similar but not identical to those found in Black-Scholes; 2. A framework; i.e., risk-neutral valuation which allows us to infer the probability of an up-jump; 3. An assumption about asset dynamics, in this case that arithmetic...