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HW 6

The document discusses using lattice and trinomial tree models to price European and American options under different dividend scenarios. Specifically, it compares: 1) Pricing European and American calls with proportional vs dollar dividends using lattice models. 2) Developing a lattice model to price European puts with proportional and dollar dividends. 3) Using trinomial tree models to price European and American puts and comparing convergence to Black-Scholes prices.

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67 views13 pages

HW 6

The document discusses using lattice and trinomial tree models to price European and American options under different dividend scenarios. Specifically, it compares: 1) Pricing European and American calls with proportional vs dollar dividends using lattice models. 2) Developing a lattice model to price European puts with proportional and dollar dividends. 3) Using trinomial tree models to price European and American puts and comparing convergence to Black-Scholes prices.

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api-465474049
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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金融商品設計與評價 HW6

第六組

一、​Dividend (Proportion)

LatticeEurCallDivP vs LatticeAmCallDivP

用 LatticeEurCallDivP 和 LatticeAmCallDivP 這兩個函數分別計算歐式和美式買權在支付股


票股利下的價格，再用函數 Comp_LatticeAmCallDivP_LatticeEurCallDivP 計算歐式與美式買
權價格在股利不同大小 (div) 與不同時間 (tau) 下的差額，畫出 3-D 圖。

% LatticeEurCallDivP vs LatticeAmCallDivP
function​ Comp_LatticeAmCallDivP_LatticeEurCallDivP()
S0=50; X=50; r=0.02; T=1; sigma=0.2; N=10;
div=0.05:0.05:0.5; tau=1:N-1;
LatticeAmCallDiv_price = zeros(length(tau),length(div));
LatticeEurCallDiv_price = zeros(length(tau),length(div));

for​ i=1:length(tau) ​%different tau


​for​ j=1:length(div) ​%different dividend
[LatticeAmCallDiv_price(i,j),~] =
LatticeAmCallDivP(S0,X,r,T,sigma,N,div(j),tau(i));
[LatticeEurCallDiv_price(i,j),~] =
LatticeEurCallDivP(S0,X,r,T,sigma,N,div(j));
​end
end

[A,B] = meshgrid(div,tau);
figure
Code Diff = LatticeAmCallDiv_price - LatticeEurCallDiv_price;
surf(A,B,Diff);
title(​"Difference between AmCall and EurCall"​)
xlabel(​'dividend'​);
ylabel(​'tau'​);
zlabel(​'AmCall - EurCall'​);
colorbar
end

%LatticeAmCallDivP.m
function​[price,lattice]=LatticeAmCallDivP(S0,X,r,T,sigma,
N,div,tau)
deltaT=T/N;
u=exp(sigma*sqrt(deltaT));
d=1/u;
p=(exp(r*deltaT)-d)/(u-d);
lattice=zeros(N+1,N+1);
for​ j=0:N
lattice(N+1,j+1)=max(0,S0*(u^j)*(d^(N-j))*(1-div)-X);
end
for​ i=N-1:-1:tau
​for​ j=0:i
lattice(i+1,j+1)=max(S0*u^j*d^(i-j)*(1-div)-X,​...

exp(-r*deltaT)*(p*lattice(i+2,j+2)+(1-p)*lattice(i+2,j+1)
)); 
​end
end
for​ i=tau-1:-1:0
​for​ j=0:i
lattice(i+1,j+1)=max(S0*u^j*d^(i-j)-X,​...

exp(-r*deltaT)*(p*lattice(i+2,j+2)+(1-p)*lattice(i+2,j+1)
));
​end
end
price=lattice(1,1);
end

%LatticeEurCallDivP.m
function​[price,lattice]=LatticeEurCallDivP(S0,X,r,T,sigma
,N,div)
deltaT=T/N;
u=exp(sigma*sqrt(deltaT));
d=1/u;
p=(exp(r*deltaT)-d)/(u-d);
lattice=zeros(N+1,N+1);
for​ j=0:N
lattice(N+1,j+1)=max(0,S0*(u^j)*(d^(N-j))*(1-div)-X);
end
for​ i=N-1:-1:0
​for​ j=0:i

lattice(i+1,j+1)=exp(-r*deltaT)*(p*lattice(i+2,j+2)+(1-p)
*lattice(i+2,j+1));
​end
end
price=lattice(1,1);
end
Outcome

LatticeEurPutDivP

計算歐式賣權在支付股票股利下的價格。

% LatticeEurPutDivP.m
function​ [price, lattice] =
LatticeEurPutDivP(S0,X,r,T,sigma,N,div)
deltaT = T/N;
u=exp(sigma * sqrt(deltaT));
d=1/u;
p=(exp(r*deltaT) - d)/(u-d);
lattice = zeros(N+1,N+1);

for​ j=0:N
lattice(N+1,j+1)=max(0 ,
Code
X-S0*(u^j)*(d^(N-j))*(1-div));
end

for​ i=N-1:-1:0
​for​ j=0:i
lattice(i+1,j+1) = exp(-r*deltaT) *(p *
lattice(i+2,j+2) + (1-p) * lattice(i+2,j+1));
​end
end

price = lattice(1,1);
end
% test :
[price,lattice]=LatticeEurPutDivP(50,50,0.02,1,0.2,10,0.0
5)

Outcome

二、​Dividend (Dollar)

LatticeEurCallDivD vs LatticeAmCallDivD

用 LatticeEurCallDivD 和 LatticeAmCallDivD 這兩個函數分別計算歐式和美式買權在支付現


金股利下的價格，再用函數 Comp_LatticeCallDivD_EurVsAm 計算歐式與美式買權價格在股
利不同大小 (D) 與不同時間 (tau) 下的差額，畫出 3-D 圖。

% LatticeEurCallDivD vs. LatticeAmCallDivD


function​ Comp_LatticeCallDivD_EurVsAm()
S0=52; X=50; r=0.1; sigma=0.4; T=5/12; N=10;
D=0.5:0.5:10; tau=1:N-1;

EurPrice = zeros(length(tau), length(D));


AmPrice = zeros(length(tau), length(D));

for​ i=1:length(tau) ​% change tau


​for​ j=1:length(D) ​%change dividend
Code [EurPrice(i,j),~] =
LatticeEurCallDivD(S0,X,r,T,sigma,N,D(j),tau(i));
[AmPrice(i,j),~] =
LatticeAmCallDivD(S0,X,r,T,sigma,N,D(j),tau(i));
​end
end

[A, B] = meshgrid(D, tau);


figure
Diff = AmPrice - EurPrice;
surf(A, B, Diff)
title(​"Difference between AmCall and EurCall"​)
xlabel(​'dividend'​);
ylabel(​'tau'​);
zlabel(​'AmCall - EurCall'​);
colorbar
end

% LatticeEurCallDivD.m
function​ [price, lattice] =
LatticeEurCallDivD(S0,X,r,T,sigma,N,D,tau)
deltaT = T/N;
u=exp(sigma * sqrt(deltaT));
d=1/u;
p=(exp(r*deltaT) - d)/(u-d);
S0a=S0-D*exp(-r*tau*deltaT);
lattice = zeros(N+1,N+1);

for​ j=0:N
lattice(N+1,j+1)=max(0 , S0a*(u^j)*(d^(N-j))-X);
end

for​ i=N-1:-1:0
​for​ j=0:i
lattice(i+1,j+1) = exp(-r*deltaT) *(p *
lattice(i+2,j+2) + (1-p) * lattice(i+2,j+1));
​end
end

price = lattice(1,1);
end

% LatticeAmCallDivD.m
function​ [price, lattice] =
LatticeAmCallDivD(S0,X,r,T,sigma,N,D,tau)
deltaT = T/N;
u=exp(sigma * sqrt(deltaT));
d=1/u;
p=(exp(r*deltaT) - d)/(u-d);
S0a=S0-D*exp(-r*tau*deltaT);
lattice = zeros(N+1,N+1);

for​ j=0:N
lattice(N+1,j+1)=max(0 , S0a*(u^j)*(d^(N-j))-X);
end

for​ i=N-1:-1:tau
​for​ j=0:i
​ ..
lattice(i+1,j+1) = max( S0a*u^j*d^(i-j)-X , .
exp(-r*deltaT) *(p * lattice(i+2,j+2) + (1-p) *
lattice(i+2,j+1)));
​end
end

for​ i=tau-1:-1:0
​for​ j=0:i
lattice(i+1,j+1) = max(
S0a*u^j*d^(i-j)+D*exp(-r*(tau-i)*deltaT)-X , ​...
exp(-r*deltaT) *(p * lattice(i+2,j+2) + (1-p) *
lattice(i+2,j+1)));
​end
end
price = lattice(1,1);
end

Outcome

LatticeEurPutDivD

計算歐式賣權在支付現金股利下的價格。

% LatticeEurPutDivD
function​ [price, lattice] =
LatticeEurPutDivD(S0,X,r,T,sigma,N,D,tau)
deltaT = T/N;
Code
u=exp(sigma * sqrt(deltaT));
d=1/u;
p=(exp(r*deltaT) - d)/(u-d);
S0a=S0-D*exp(-r*tau*deltaT);
lattice = zeros(N+1,N+1);

for​ j=0:N
lattice(N+1,j+1)=max(0 , X - S0a*(u^j)*(d^(N-j)));
end

for​ i=N-1:-1:0
​for​ j=0:i
lattice(i+1,j+1) = exp(-r*deltaT) * ​...
(p * lattice(i+2,j+2) + (1-p) *
lattice(i+2,j+1));
​end
end

price = lattice(1,1);
end

Outcome

三、​Trinomial Trees

TriEurPut

用三元樹模型計算歐式賣權的價格。

% TriEurPut.m
function​ [price, lattice] =
TriEurPut(S0,X,r,T,sigma,N,lamda)
deltaT = T/N;
u=exp(lamda*sigma * sqrt(deltaT));
Code d=1/u;
pu=1/(2*lamda^2)+(r-(sigma^2/2))*sqrt(deltaT)/(2*lamda*si
gma);
pm=1-1/(lamda^2);
pd=1-pu-pm;
lattice = zeros(N+1,2*N+1);
for​ j=1:N+1
lattice(N+1,j)=max(0 , X-S0*(d^(N-j+1)));
end

for​ j=N+2:2*N+1
lattice(N+1,j)=max(0 , X-S0*(u^(j-N-1)));
end

for​ i=N-1:-1:0
​for​ j=1:2*i+1
lattice(i+1,j) = exp(-r*deltaT) * ​...
(pd * lattice(i+2,j) + pm * lattice(i+2,j+1)+
...
pu*lattice(i+2,j+2));
​end
end
price = lattice(1,1);
end
 

Outcome

CompBlsBinTri_EurPut

比較歐式賣權用內建Black–Scholes函數、二元樹模型與三元樹模型訂價的價格差異。從結果
可知，用三元樹模型時價格收斂較快。

% CompBlsBinTri_EurPut.m
function​ CompBlsBinTri_EurPut()
S0=50; X=50; r=0.04879; sigma=0.2; T=7/12; N=70;
lamda=1.41421;

[~, BlsP] = blsprice(S0,X,r,T,sigma);


LatticeC1 = zeros(1,N);
Code LatticeC2 = zeros(1,N);

for​ i=(1:N)
[LatticeC1(i),~] = LatticeEurPut(S0,X,r,T,sigma,i);
[LatticeC2(i),~] = TriEurPut(S0,X,r,T,sigma,i,lamda);
end

plot(1:N, ones(1,N)*BlsP);
hold ​on​;
plot(1:N, LatticeC1);
plot(1:N, LatticeC2);
title(​'Bls vs. BinTree vs. TriTree'​);
xlabel(​'N'​);
ylabel(​'Price of European Put'​);
legend(​'Bls'​,​'LatticeEurPut'​,​'TriEurPut'​)
end

% LatticeEurPut.m
function​[price,lattice]=LatticeEurPut(S0,X,r,T,sigma,N)
deltaT=T/N;
u=exp(sigma*sqrt(deltaT));
d=1/u;
p=(exp(r*deltaT)-d)/(u-d);

lattice=zeros(N+1,N+1);

for​ j=0:N
lattice(N+1,j+1)=max(0,X-S0*(u^j)*(d^(N-j)));
end

for​ i=N-1:-1:0
​for​ j=0:i

lattice(i+1,j+1)=exp(-r*deltaT)*(p*lattice(i+2,j+2)+(1-p)
*lattice(i+2,j+1));
​end
end

price=lattice(1,1);
end
Outcome

TriAmPut

用三元樹模型計算美式賣權的價格。

% TriAmPut.m
function​ [price, lattice] =
TriAmPut(S0,X,r,T,sigma,N,lamda)
deltaT = T/N;
u=exp(lamda*sigma * sqrt(deltaT));
d=1/u;
pu=1/(2*lamda^2)+(r-(sigma^2/2))*sqrt(deltaT)/(2*lamda*si
gma);
pm=1-1/(lamda^2);
Code pd=1-pu-pm;
lattice = zeros(N+1,2*N+1);

% Calculate the payoff at maturity


for​ j=1:N+1
lattice(N+1,j)=max(0 , X - S0*(d^(N-j+1)));
end
for​ j=N+2:2*N+1
lattice(N+1,j)=max(0 , X - S0*(u^(j-N-1)));
end
% Backward Induction
for​ i=N-1:-1:0 ​% the number of period
​for​ j=1:i+1 ​% the number of up, middle, and down
lattice(i+1,j) = max( X-S0*(d^(i-j+1))
,exp(-r*deltaT) * ​...
(pd * lattice(i+2,j) + pm * lattice(i+2,j+1)+
...
pu*lattice(i+2,j+2)));
​end
​for​ j=i+2:2*i+1
lattice(i+1,j) = max( X-S0*(u^(j-i-1)) ,
exp(-r*deltaT) * ​...
(pd * lattice(i+2,j) + pm * lattice(i+2,j+1)+
...
pu*lattice(i+2,j+2)));
​end
end

price = lattice(1,1);
end

Outcome

CompBinTri_AmPut

比較美式賣權用二元樹模型與三元樹模型訂價的價格差異。

% CompBlsBinTri.m
function​ CompBinTri_AmPut()
S0=50; X=50; r=0.04879; sigma=0.2; T=7/12; N=70;
lamda=1.41421;

Code
LatticeC1 = zeros(1,N);
LatticeC2 = zeros(1,N);

for​ i=(1:N) ​% the number of periods


[LatticeC1(i),~] = LatticeAmPut(S0,X,r,T,sigma,i);
[LatticeC2(i),~] = TriAmPut(S0,X,r,T,sigma,i,lamda);
end

plot(1:N, LatticeC1);
hold ​on
plot(1:N, LatticeC2);
title(​'BinTree vs. TriTree'​);
xlabel(​'N'​);
ylabel(​'Price of American Put'​);
legend(​'LatticeAmPut'​,​'TriAmPut'​)

end

% LatticeAmPut.m
function​ [price, lattice] =
LatticeAmPut(S0,X,r,T,sigma,N)
deltaT = T/N;
u=exp(sigma * sqrt(deltaT));
d=1/u;
p=(exp(r*deltaT) - d)/(u-d);
lattice = zeros(N+1,N+1);

for​ j=0:N
lattice(N+1,j+1)=max(0, X-S0*(u^j)*(d^(N-j)));
end

for​ i=N-1:-1:0
​for​ j=0:i
​ ..
lattice(i+1,j+1) = max( X-S0*u^j*d^(i-j) , .
exp(-r*deltaT) *(p * lattice(i+2,j+2) + (1-p) *
lattice(i+2,j+1)));
​end
end
price = lattice(1,1);
end
Outcome

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