m4fe (version 0.1)

recursiveTree: European Call Option Price (Recursive)

Description

Determines the price of a European Call Option by using a recursive relationship in the binomial tree

Usage

recursiveTree(S, K, sigma, r, delta, h, T = 1)

Arguments

S

The Stock Price

K

The Strike Price

sigma

The volatility

r

The risk-free continuously compounded interest rate

delta

The annualized dividend rate

h

the number of periods betwen 0 and T, where each period is of length 1/h

T

the expiration time

Details

Uses formulas for u and d presented by Cox in his forward tree model. Note that the option price converges to the Black-Scholes option price

Examples

recursiveTree(S=41,K=40,sigma=0.3,r=0.08,delta=0,h=5,T=1)