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crrtree

Build Cox-Ross-Rubinstein stock tree

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Syntax

CRRTree = crrtree(StockSpec,RateSpec,TimeSpec)

Description

CRRTree = crrtree(StockSpec,RateSpec,TimeSpec) builds a Cox-Ross-Rubinstein stock tree.

example

Examples

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Open Live Script

Using the data provided, create a stock specification (StockSpec), rate specification (RateSpec), and tree time layout specification (TimeSpec). Then use these specifications to create a CRR tree with crrtree.

Sigma = 0.20;
AssetPrice = 50;
DividendType = 'cash';
DividendAmounts = [0.50; 0.50; 0.50; 0.50];
ExDividendDates = {'03-Jan-2003'; '01-Apr-2003'; '05-July-2003';
'01-Oct-2003'};

StockSpec = stockspec(Sigma, AssetPrice, DividendType, ...
DividendAmounts, ExDividendDates);

RateSpec = intenvset('Rates', 0.05, 'StartDates',...
'01-Jan-2003', 'EndDates', '31-Dec-2003','Compounding',-1);

ValuationDate = '1-Jan-2003';
Maturity = '31-Dec-2003';
TimeSpec = crrtimespec(ValuationDate, Maturity, 4);

CRRTree = crrtree(StockSpec, RateSpec, TimeSpec)
CRRTree = struct with fields:
       FinObj: 'BinStockTree'
       Method: 'CRR'
    StockSpec: [1x1 struct]
     TimeSpec: [1x1 struct]
     RateSpec: [1x1 struct]
         tObs: [0 0.2493 0.4986 0.7479 0.9972]
         dObs: [731582 731673 731764 731855 731946]
        STree: {[50]  [54.0632 44.4531]  [59.6501 49.0307 40.3339]  [64.8166 53.0820 43.4719 35.6016]  [71.6235 58.6566 48.0372 39.3404 32.2181]}
      UpProbs: [0.5378 0.5378 0.5378 0.5378]

Input Arguments

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Stock specification, specified by the StockSpec obtained from stockspec. See stockspec for information on creating a stock specification.

Data Types: struct

Interest-rate specification for initial risk-free rate curve, specified by the RateSpec obtained from intenvset. For information on the interest-rate specification, see intenvset.

Note

The standard CRR tree assumes a constant interest rate, but RateSpec allows you to specify an interest-rate curve with varying rates. If you specify variable interest rates, the resulting tree is not a standard CRR tree.

Data Types: struct

Tree time layout specification, specified by the TimeSpec obtained from crrtimespec. The TimeSpec defines the observation dates of the CRR binomial tree. See crrtimespec for information on the tree structure.

Data Types: struct

Output Arguments

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CRR binomial tree, returned as a structure specifying the time layout for the tree.

Version History

Introduced before R2006a

See Also

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