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Implied Binomial Trees in Excel without VBA

21 Pages Posted: 8 May 2004  

Tom Arnold

University of Richmond - E. Claiborne Robins School of Business

Timothy Falcon Crack

University of Otago - Department of Accountancy and Finance

Adam Schwartz

Washington and Lee University - Department of Business Administration

Date Written: 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.

Keywords: Option Pricing, Implied Binomial Tree, Excel

JEL Classification: G12, G13, C61

Suggested Citation

Arnold, Tom and Crack, Timothy Falcon and Schwartz, Adam, Implied Binomial Trees in Excel without VBA (May 14, 2004). Available at SSRN: https://ssrn.com/abstract=541744 or http://dx.doi.org/10.2139/ssrn.541744

Thomas M. Arnold

University of Richmond - E. Claiborne Robins School of Business ( email )

1 Gateway Drive
Richmond, VA 23173
United States
804-287-6399 (Phone)
804-289-8878 (Fax)

Timothy Falcon Crack (Contact Author)

University of Otago - Department of Accountancy and Finance ( email )

Dunedin
New Zealand

Adam Schwartz

Washington and Lee University - Department of Business Administration ( email )

Lexington, VA 24450
United States

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