Binomial Model - Plotting time evolution of Derivative

N

newadmit

Joined
5/7/11
Messages
4
Points
11
I have created a binomial tree of 100 steps for pricing European call. The matrix A (100x100) has option prices. Now, how do I plot time evolution of Derivative?
Plotting 10,000 time pts with 10000 option price doesnt make sense. I dont know which price to choose as the tree grows eg at 50 time point there are 50 possible option price.
I looked at Derivagem (Hull) where they plot option price v/s time with only 25 data points. I cant see underlying assumptions as the VBA code is password protected.
 
If you mean you want to plot all the paths out, I would suggest you give up. Because there are 2^100 different paths within your 100 -step binomial tree. Simulating paths is a necessary procedure in Monte-Carlo simulation, which however produces far less possible paths than a large binomial tree. Thus plotting all the paths out in a binomial tree is mission impossible.

For illustration purpose, you could plot part of the paths out. You only need to set up an algorithm to pick an arbitrary path out. You could consider U^100, where U is a 1-0 random variable.
 
You must log in or register to reply here.
Back
Top Bottom