21 Pages Posted: 8 May 2004
Date Written: May 14, 2004
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: 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
By David Bates