Implied Binomial Tree Method for Pricing TAITEX Options
Date Issued
2006
Date
2006
Author(s)
Chan, Hsun-Cheng
DOI
en-US
Abstract
ABSTRACT
Building a recombining tree consistent with the volatility smile from observed options in the market is important for pricing. We adopts Barle and Cakici’s (1998) implied tree that modifies some features in Derman and Kani’s (1994) and use it to price TAIEX (Taiwan Stock Exchange Capitalization Weighted Stock Index) options, which are European options. Then one can price other exotic or path-dependant options by using implied binomial trees which satisfy implied volatilities under different maturities and strike prices. With this feature, the prices of derivatives will be more consistent with market quotes. Therefore, the result is a very practical and market-oriented tree model that helps us price new derivatives.
Subjects
隱含二元樹
二元樹
微笑現象
隱含波動率
implied binomial tree
binomial tree
smile
implied volatility
Type
thesis
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