Transcript Barrier

Barrier option valuation with
binomial model
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Binomial model
Barrier options
Formulas
Application
Barrier options
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Down-and-out
Down-and-in
Up-and-out
Up-and-in
Barrier levels
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Down-and-out: H < K
Down-and-in: H < K
Up-and-out: H > K
Up-and-in: H > K
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.
Formulas
•Up factor
•Down factor
•Riskless probability
•Up-and-in Up-and-out (Call option)
•Down-and-in Down-and-out (Put option)
Binomial tree
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