What's the Binomial Options Pricing Model Formula?

[wentonchan]

Hi everyone,

Anyone have a link to the BOPM formula for American options? I'm trying to figure out what it is so I can code it up in excel. I can't understand the one on wikipedia; any help would be most appreciated.

Thanks!

 

[jeb9999]

It is not a formula, it requires evaluating each node on the binomial tree and working backwards to the first node.

Some of the mathematical details are explained at http://people.brunel.ac.uk/~icsrsss/finance/options/binomial/

 

[Bernoulli]

If you look at the bottom of the wikipedia article you'll find a bunch of pdfs that go into it further.

For coding in excel look at books by Simon Benninga and Fabrice Rouah.

 

[panzerman]

If you know a bit of computer programming, the following link has some good algorithms.

http://finance.bi.no/~bernt/gcc_prog/recipes/index.html