Main Content

# eqptree

Build Equal Probabilities stock tree

## Syntax

``EQPTree = eqptree(StockSpec,RateSpec,TimeSpec)``

## Description

example

````EQPTree = eqptree(StockSpec,RateSpec,TimeSpec)` builds an Equal Probabilities stock tree.```

## Examples

collapse all

Using the data provided, create a stock specification (`StockSpec`), rate specification (`RateSpec`), and tree time layout specification (`TimeSpec`). Then use these specifications to create an EQP stock tree with `eqptree`.

```Sigma = 0.20; AssetPrice = 50; DividendType = 'cash'; DividendAmounts = [0.50; 0.50; 0.50; 0.50]; ExDividendDates = {'03-Jan-2003'; '01-Apr-2003'; '05-July-2003'; '01-Oct-2003'}; StockSpec = stockspec(Sigma, AssetPrice, DividendType, ... DividendAmounts, ExDividendDates); RateSpec = intenvset('Rates', 0.05, 'StartDates',... '01-Jan-2003', 'EndDates', '31-Dec-2003'); ValuationDate = '1-Jan-2003'; Maturity = '31-Dec-2003'; TimeSpec = eqptimespec(ValuationDate, Maturity, 4); EQPTree = eqptree(StockSpec, RateSpec, TimeSpec)```
```Warning: RateSpec was not created with continuous compounding. Compounding will be set to continuous while leaving discount factors unaltered. This will result in the recalculation of the interest rates. EQPTree = struct with fields: FinObj: 'BinStockTree' Method: 'EQP' StockSpec: [1×1 struct] TimeSpec: [1×1 struct] RateSpec: [1×1 struct] tObs: [0 0.2493 0.4986 0.7479 0.9972] dObs: [731582 731673 731764 731855 731946] STree: {1×5 cell} UpProbs: [0.5000 0.5000 0.5000 0.5000]] ```

Use `treeviewer` to observe the tree you have created.

## Input Arguments

collapse all

Stock specification, specified by the `StockSpec` obtained from `stockspec`. See `stockspec` for information on creating a stock specification.

Data Types: `struct`

Interest-rate specification for initial risk-free rate curve, specified by the `RateSpec` obtained from `intenvset`. For information on the interest-rate specification, see `intenvset`.

Note

The standard equal probabilities tree assumes a constant interest rate, but `RateSpec` allows you to specify an interest-rate curve with varying rates. If you specify variable interest rates, the resulting tree is not a standard equal probabilities tree.

Data Types: `struct`

Tree time layout specification, specified by the `TimeSpec` obtained from `eqptimespec`. The `TimeSpec` defines the observation dates of the EQP stock tree. See `eqptimespec` for information on the tree structure.

Data Types: `struct`

## Output Arguments

collapse all

EQP stock tree, returned as a structure specifying the time layout for the tree.

Introduced before R2006a

Download ebook