Re: Asset Evolution in a binomial world (Finance)
- To: mathgroup at smc.vnet.net
- Subject: [mg38992] Re: Asset Evolution in a binomial world (Finance)
- From: Ignacio Sniechowski <ignatius at mac.com>
- Date: Fri, 24 Jan 2003 05:03:46 -0500 (EST)
- Sender: owner-wri-mathgroup at wolfram.com
Hi list, I have the following problem. Suppose you have an initial value (value of assets Vo) and you know (like in a binomial option pricing model) that this asset value can either go up (Vo u) or down (Vo d), where u is 1.1 (let's assume this) and d==1/u. This process continues defining a binomial tree for the evolution of this asset value. Now suppose that, in step 3 (M1), you have to subtract P1 from the asset value at that moment. You have to subtract this amount P1 to each node (in step 3 you will have 4 nodes). Then continue with the binomial tree using u and d as defined above. I really have a problem here. My implementation is an algorith that produces a n-step binomial tree starting with value Vo and with given u & d parameters. However my problem is that this algorithm subtracts P1 for all the values of the tree after step 3. What the algorithm its expected to do is to subtract P1 only for the nodes of step 3 and then go on with the calculation. Thanks in advance Ignacio > >