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Barrier option valuation with binomial model

Barrier option valuation with binomial model. Binomial model Barrier options Formulas Application. Barrier options. Down-and-out Down-and-in Up-and-out Up-and-in. Barrier levels. Down-and-out: H < K Down-and-in: H < K Up-and-out: H > K Up-and-in: H > K. Binomial Model.

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Barrier option valuation with binomial model

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  1. Barrier option valuation with binomial model • Binomial model • Barrier options • Formulas • Application

  2. Barrier options Down-and-out Down-and-in Up-and-out Up-and-in

  3. Barrier levels • Down-and-out: H < K • Down-and-in: H < K • Up-and-out: H > K • Up-and-in: H > K

  4. Binomial Model • Proposed by cox, Ross and Rubinstein in 1979 • Used for valuation of options. • Its flexible, intuitive, base on random walks theory. • Concept, price can go up or down during a single period of time. • Movement of the price of underlying asset follow a binomial distrbution.

  5. Formulas • Up factor • Down factor • Riskless probability • Up-and-inUp-and-out (Call option) • Down-and-in Down-and-out (Put option)

  6. Binomial tree

  7. Thank you!

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