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Price instruments using standard trinomial tree



[Price,PriceTree] = sttprice(STTTree,InstSet) prices instruments using a standard trinomial (STT) tree.


[Price,PriceTree] = sttprice(___,Name,Value) prices instruments using a standard trinomial (STT) tree with an optional name-value pair argument for Options.


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Load the data into the MATLAB® workspace.

load deriv.mat

STTTree and STTInstSet are the input arguments required to call the function sttprice. Use the command instdisp to examine the set of instruments contained in the variable STTInstSet.

Index Type     OptSpec Strike Settle         ExerciseDates  AmericanOpt Name  Quantity
1     OptStock call    100    01-Jan-2009    01-Jan-2011    1           Call1 10      
2     OptStock put      80    01-Jan-2009    01-Jan-2012    0           Put1   5      
Index Type    OptSpec Strike Settle         ExerciseDates  AmericanOpt BarrierSpec Barrier Rebate Name     Quantity
3     Barrier call    105    01-Jan-2009    01-Jan-2012    1           ui          115     0      Barrier1 1       
Index Type     UOptSpec UStrike USettle        UExerciseDates UAmericanOpt COptSpec CStrike CSettle        CExerciseDates CAmericanOpt Name      Quantity
4     Compound call     95      01-Jan-2009    01-Jan-2012    1            put      5       01-Jan-2009    01-Jan-2011    1            Compound1 3       
Index Type     OptSpec Strike Settle         ExerciseDates  AmericanOpt Name      Quantity
5     Lookback call    90     01-Jan-2009    01-Jan-2012    0           Lookback1 7       
6     Lookback call    95     01-Jan-2009    01-Jan-2013    0           Lookback2 9       
Index Type  OptSpec Strike Settle         ExerciseDates  AmericanOpt AvgType    AvgPrice AvgDate Name   Quantity
7     Asian call    100    01-Jan-2009    01-Jan-2012    0           arithmetic NaN      NaN     Asian1 4       
8     Asian call    100    01-Jan-2009    01-Jan-2013    0           arithmetic NaN      NaN     Asian2 6       

The instrument set contains eight instruments:

  • Two vanilla options (Call1, Put1)

  • One barrier option (Barrier1)

  • One compound option (Compound1)

  • Two lookback options (Lookback1, Lookback2)

  • Two Asian options (Asian1, Asian2)

Use sttprice to calculate the price of each instrument in the instrument set.

Price = sttprice(STTTree, STTInstSet)
Price = 8×1


Input Arguments

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Stock tree structure for a standard trinomial tree, specified by using stttree.

Data Types: struct

Variable containing a collection of NINST instruments, specified as a structure. Instruments are broken down by type and each type can have different data fields.

Data Types: struct

Name-Value Arguments

Specify optional comma-separated pairs of Name,Value arguments. Name is the argument name and Value is the corresponding value. Name must appear inside quotes. You can specify several name and value pair arguments in any order as Name1,Value1,...,NameN,ValueN.

Example: [Price,PriceTree] = sttprice(STTTree,InstSet,'Options',deriv)

Derivatives pricing options, specified as the comma-separated pair consisting of 'Options' and a structure that is created with derivset.

Data Types: struct

Output Arguments

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Expected prices for each instrument at time 0, returned as a NINST-by-1 vector. The prices are computed by backward dynamic programming on the standard trinomial (STT) stock tree. If an instrument cannot be priced, a NaN is returned in that entry.

Structure with a vector of instrument prices at each node, returned as a tree structure.

PriceTree is a MATLAB® structure of trees containing vectors of instrument prices and a vector of observation times for each node.

PriceTree.PTree contains the prices.

PriceTree.tObs contains the observation times.

PriceTree.dObs contains the observation dates.

Introduced in R2015b