# Daily Archives: September 25, 2010

## Basic accounting short course: Accounting training for small businesses – Preparing the T-account

In the previous example, we introduced the concept of debit and credit and basic accounting rules. Let’s put them to work and create a T-account. Here are the rules and the T-account for quick reference Name of the item Date \$ Date \$ xxxx Other

## Basic accounting short course: Accounting training for small businesses – Introducing Debit & Credit

Double-Entry system Assets = Capital + Liabilities In Accounting, whenever record any transaction we consider the effect of the transaction on the accounting equation above. For all transactions the above equation has to balance. This means that every transaction must have two effects, one for

## Basic Accounting short course: Accounting training for small businesses

This short course in basic accounting is designed for a small business owner who is looking for training to walk him through the process behind the maintenance of books of accounts The Need for Accounting Every business, no matter big or small, has the inherent

## Options pricing using Binomial trees – Building an efficient option pricing spreadsheet in Excel

This course focuses on an alternative method of implementing a two-dimensional binomial tree compared to the traditional method of building a binomial tree in excel presented in most option pricing text books.   The alternate approach is based on the techniques documented by Professor Mark Broadie

## Options Pricing – Binomial Trees – Pricing Sudden death Options – Down and in call options

Pricing Down-and-in call options This is a knock in barrier option. The option comes into existent only after the underlying’s price crosses a certain barrier price, H. The barrier lies below the underlying’s price at inception, hence the “down” in the title above. Unlike the

## Options pricing – Pricing Knockout exotic options – Sudden Death Options – Down and out call options

Pricing Down-and-out call options This is a knock out barrier option. The option “dies” when the underlying’s price crosses a certain barrier price, H. The barrier lies below the underlying’s price at inception, hence the “down” in the title above. The adjustments that will be

## Options pricing–Exotics Options–Pricing a Capped Call–Excel implementation – Binomial trees

Pricing Capped Calls with Automatic Exercise A capped call with automatic exercise is an option where the payoff is capped at a given level L. The auto exercise feature further means that whenever the option’s intrinsic value touches or exceeds L, the option will automatically be exercised

## Options Pricing – Pricing Put Options – Option pricing spreadsheet – Binomial trees

Pricing European Put Option The procedure to be followed for pricing a European put option is the same except that in Step 2 the payoffs calculated in column B will be CT =Max(K- ST,0). For a put option with a strike and initial price of

## Options Pricing – Pricing American Options – Calls and Puts – Spreadsheet implementation – Binomial trees

Pricing American Call Option Assume the same parameters used for pricing for the European call. The adjustment will be made in Step 3 in column C of our option pricing spreadsheet and then copied to column D of our option pricing spread sheet and later

## Options Pricing – Pricing Call Options – Option pricing spreadsheet – Binomial trees

European Call Option – Spreadsheet Implementation of Binomial Tree The problem with the traditional method of constructing the binomial tree for options pricing is that extra care must be taken to ensure that the right cells are picked up in the calculation. With the alternative options