Search results
Results From The WOW.Com Content Network
Binomial Lattice for equity, with CRR formulae Tree for an bond option returning the OAS (black vs red): the short rate is the top value; the development of the bond value shows pull-to-par clearly . In quantitative finance, a lattice model [1] is a numerical approach to the valuation of derivatives in situations requiring a discrete time model.
In finance, the binomial options pricing model (BOPM) provides a generalizable numerical method for the valuation of options.Essentially, the model uses a "discrete-time" (lattice based) model of the varying price over time of the underlying financial instrument, addressing cases where the closed-form Black–Scholes formula is wanting, which in general does not exist for the BOPM.
As above, the PDE is expressed in a discretized form, using finite differences, and the evolution in the option price is then modelled using a lattice with corresponding dimensions: time runs from 0 to maturity; and price runs from 0 to a "high" value, such that the option is deeply in or out of the money. The option is then valued as follows: [5]
It is an extension of the binomial options pricing model, and is conceptually similar. It can also be shown that the approach is equivalent to the explicit finite difference method for option pricing. [1] For fixed income and interest rate derivatives see Lattice model (finance)#Interest rate derivatives.
The valuation of the underlying instrument – additional to its derivatives – is relatedly extended, particularly for hybrid securities, where credit risk is combined with uncertainty re future rates; see Bond valuation § Stochastic calculus approach and Lattice model (finance) § Hybrid securities. [note 15]
The most common option pricing models employed here are the Black–Scholes-Merton models, lattice models and Monte Carlo simulations. This approach is sometimes referred to as contingent claim valuation, in that the value will be contingent on some other asset. See Outline of finance § Contingent claim valuation.
The most common ways to tap your equity are via a home equity loan or home equity line of credit (HELOC). Purchasing property with home equity can be cost-effective and make you a more competitive ...
Forward rate / Forward curve-based models (Application as per short-rate models) LIBOR market model (also called: Brace–Gatarek–Musiela Model, BGM) Heath–Jarrow–Morton Model (HJM) Cheyette model; Valuation adjustments Credit valuation adjustment; XVA; Yield curve modelling Multi-curve framework; Bootstrapping (finance)