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Implied Binomial Trees in Excel without VBATom ArnoldUniversity of Richmond - E. Claiborne Robins School of Business Timothy Falcon CrackUniversity of Otago - Department of Finance and Quantitative Analysis Adam SchwartzWashington and Lee University - Department of Business Administration May 14, 2004 Abstract: We show how to implement a Rubinstein (1994) implied binomial tree using an Excel spreadsheet, but without having to use visual basic in Excel (VBA). We demonstrate both the optimization needed to generate implied ending risk-neutral probabilities from a set of actual option prices and the backwards recursion needed to solve for the entire implied tree. By using only standard Excel functions, and not resorting to VBA, we make this option pricing technique immediately accessible to both practitioners and academics. With minimal preparation, this technique can also be introduced to the undergraduate classroom.
Number of Pages in PDF File: 21 Keywords: Option Pricing, Implied Binomial Tree, Excel JEL Classification: G12, G13, C61 working papers seriesDate posted: May 8, 2004Suggested CitationContact Information
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