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In this chapter, we review two famous models on binomial option pricing, Rendleman and Barter (RB 1979) and Cox et al. (CRR 1979). We show that the limiting results of the two models both lead to the celebrated Black-Scholes formula. From our detailed derivations, CRR is easy to follow if one has the advanced level knowledge in probability theory but the assumptions on the model parameters make its...
This paper will first demonstrate how Microsoft Excel can be used to create the Decision Trees for the Binomial Option Pricing Model. At the same time, this paper will discuss the Binomial Option Pricing Model in a less mathematical fashion. All the mathematical calculations will be done by the Microsoft Excel program that is presented in this paper. Finally, this paper uses the Decision Tree approach...
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