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 at Columbia Business School as part of his coursework in Security Pricing and Computational Finance courses at Columbia University and allows us to extend a simple 3 step tree to a 50 – 100 step option pricing tree in a few minutes.
The course starts with pricing European calls and put options, followed by pricing american options and closes by reviewing option pricing for Knock out and Knock in (Sudden Death). We also review the special case of a down and in option.
In addition to tree is you would like to review the use of Monte Carlo Simulation for pricing vanilla as well as exotic options please see