crrprice

Instrument prices from Cox-Ross-Rubinstein tree

Syntax

[Price,PriceTree] = crrprice(CRRTree,InstSet)

[Price,PriceTree] = crrprice(___,Options)

Description

[Price,PriceTree] = crrprice(CRRTree,InstSet) computes stock option prices using a CRR binomial tree created with crrtree. All instruments contained in a financial instrument variable, InstSet, are priced.

crrprice handles instrument types: 'Asian', 'Barrier', 'Compound', 'CBond', 'Lookback', 'OptStock'. See instadd to construct defined types.

[Price,PriceTree] = crrprice(___,Options) adds an optional input argument for Options.

Examples

Price Barrier and Lookback Options in the Instrument Set

Load the CRR tree and instruments from the data file deriv.mat. Price the barrier and lookback options contained in the instrument set.

load deriv.mat; 
CRRSubSet = instselect(CRRInstSet,'Type', ... 
{'Barrier', 'Lookback'}); 

instdisp(CRRSubSet)

Index Type    OptSpec Strike Settle         ExerciseDates  AmericanOpt BarrierSpec Barrier Rebate Name     Quantity
1     Barrier call    105    01-Jan-2003    01-Jan-2006    1           ui          102     0      Barrier1 1       
 
Index Type     OptSpec Strike Settle         ExerciseDates  AmericanOpt Name      Quantity
2     Lookback call    115    01-Jan-2003    01-Jan-2006    0           Lookback1 7       
3     Lookback call    115    01-Jan-2003    01-Jan-2007    0           Lookback2 9       
 

Price the barrier and lookback options.

[Price, PriceTree] = crrprice(CRRTree,CRRSubSet)

Price = 3×1

   12.1272
    7.6015
   11.7772

PriceTree = struct with fields:
    FinObj: 'BinPriceTree'
     PTree: {[3×1 double]  [3×2 double]  [3×3 double]  [3×4 double]  [3×5 double]}
      tObs: [0 1 2 3 4]
      dObs: [731582 731947 732313 732678 733043]

You can use treeviewer to see the prices of these three instruments along the price tree.

Input Arguments

CRRTree — Stock price tree structure

structure

Stock price tree structure, specified by using crrtree.

Data Types: struct

InstSet — Instrument variable

structure

Instrument variable containing a collection of NINST instruments, specified using instadd. Instruments are categorized by type; each type can have different data fields. The stored data field is a row vector or character vector for each instrument.

Data Types: struct

Options — Derivatives pricing options structure

structure

(Optional) Derivatives pricing options structure, created using derivset.

Data Types: struct

Output Arguments

Price — Price for each instrument

vector

Price for each instrument, returned as a NINST-by-1 vector. The prices are computed by backward dynamic programming on the stock tree. If an instrument cannot be priced, a NaN is returned in that entry.

Related single-type pricing functions are:

• asianbycrr: Price an Asian option from a CRR tree.

• barrierbycrr: Price a barrier option from a CRR tree.

• cbondbycrr: Price convertible bonds from a CRR tree.

• compoundbycrr: Price a compound option from a CRR tree.

• lookbackbycrr: Price a lookback option from a CRR tree.

• optstockbycrr: Price an American, Bermuda, or European option from a CRR tree.

PriceTree — Tree structure of instrument prices

structure

Tree structure of instrument prices, returned as a MATLAB^® structure of trees containing vectors of instrument prices and accrued interest, and a vector of observation times for each node. Within PriceTree:

• PriceTree.PTree contains the clean prices.

• PriceTree.tObs contains the observation times.

• PriceTree.dObs contains the observation dates.

Version History

Introduced before R2006a