Pricing an option with a binomial tree
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Hey there guys, I need a little help on programming a binomial tree.
How do you set up a relative simple binomial tree with a probability of a half going up and down every time with the only requirement that the stock from value, lets say X follows the nodes in a recombinant tree for
x*exp(μδt+σ√δt) for going up x*exp(μδt-σ√δt) for going down
with N = t/δt
so that the stock price value will be something like
St= Stockprice at t zero * exp (μt+σ√t*((2Xn-n)/√n)
Any help is welcome. I'm looking to set up the basics of the binomial tree with the variables.
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2011-9-24
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