MATLAB: Does the Financial Toolbox have a Cox-Ross-Rubinstein algorithm

binpricebondcoxfinancefinancialFinancial Toolboxpricingrossrubinsteintoolbox

I would like to know if the Financial Toolbox has a Cox-Ross-Rubinstein algorithm.

Best Answer

The Financial Toolbox has a function called BINPRICE that handles the Cox-Ross-Rubinstein algorithm. For more information on this function, type 'help binprice' at the MATLAB Command Prompt. If you have installed the documentation, type 'doc binprice' to see the documentation for this function. If you do not have the documentation installed, you can find it here:

http://www.mathworks.com/access/helpdesk/help/toolbox/finance/binprice.shtml

Related Solutions

MATLAB: Is there any additional information available about the derivative price inputs to the Black-Scholes functions in the Financial Toolbox

The "Q" parameter for the Black-Scholes functions in the Financial Toolbox is the annual dividend rate expressed as a percentage of the price of the security. The equations we use are the Black-Scholes equations from "Options, Futures, & Other Derivatives" by Hull -- you can verify this by opening and viewing the function by entering the command:

edit blsprice

Consider the following example that explains the dividend parameter:

The S&P 100 index currently stands at 696 and has a volatility of 30% per annum. The risk-free rate of interest is 7% per annum and the index provides a dividend yield of 4% per annum. Calculate the value of a three-month European put with strike price 700.

This problem can be solved using the following call to the BLSPRICE function:

[Call, Put] = blsprice(696, 700, .07, .25, .3, .04)

which produces the result:

 Call =
    41.7720
 Put =
    40.5539

MATLAB: What is the difference between IMPVBYBLS and BLSIMPV, and how to I determine the Black-Scholes implied volatility using these functions

Both IMPVBYBLS and BLSIMPV use the Black-Scholes model to compute the implied volatility for a given option price. However, one of the main differences between the two functions is that IMPVBYBLS allows specifying cash dividends as well as continuous dividend yields, while BLSIMPV only allows continuous dividend yields.

If you specify continuous dividend yields for both IMPVBYBLS and BLSIMPV, they produce the same results:

Strike = 29;
AssetPrice = 30;
Sigma = .25;
Rates = 0.05;
Settle = datenum('01-Jan-2008');
Maturity = datenum('01-May-2008');
RateSpec = intenvset('ValuationDate', Settle, 'StartDates', Settle, ...
'EndDates',Maturity, 'Rates', Rates, 'Compounding', -1,'Basis',1);
DividendType = {'continuous';'continuous'};
DividendAmounts = [0.05; 0.045];
ExDividendDates = {NaN;NaN};
StockSpec = stockspec(Sigma, AssetPrice, DividendType, DividendAmounts);
OptSpec = {'call'; 'put'};
OptionPrice = optstockbybls(RateSpec, StockSpec, Settle, Maturity, OptSpec, Strike);
ImpvVol1 = impvbybls(RateSpec, StockSpec, Settle, Maturity, OptSpec, ...
Strike, OptionPrice)
ImpvVol2 = blsimpv(AssetPrice, Strike, Rates, ...
yearfrac(Settle,Maturity,1), OptionPrice, 'Class', OptSpec,'Yield',DividendAmounts)
ImpvVol1 =
0.250000000000000
0.250000000000000
ImpvVol2 =
0.250000000000000
0.250000000000000

Best Answer

Related Solutions

MATLAB: Is there any additional information available about the derivative price inputs to the Black-Scholes functions in the Financial Toolbox

MATLAB: What is the difference between IMPVBYBLS and BLSIMPV, and how to I determine the Black-Scholes implied volatility using these functions

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