C++ Coding - Black Scholes Option Pricing - Explicit Finite Difference

The example question for these solutions can be found on my website (click here).

6.1 Explicit Finite Difference For Option Pricing

In this example we are going to price a European call option with explicit finite difference.

C++ Coding - Black Scholes Option Pricing - Binomial Trees

The example question for these solutions can be found on my website (click here).

5.1 Binomial Tree For Option Pricing

The two most popular models for using binomial trees to price options are

• Cox et al. (1979) (CRR for short) whose extra degree of freedom is to set

  thus

  

• Rendleman and Bartter (1979) who choose:

  and so

  

We wish to generate a stock price tree, so denote the value of the underlying asset after timestep i and upstate j by S_ij and we have that:

C++ Coding - Black Scholes Option Pricing - Monte Carlo

3.2 Monte Carlo: Black Scholes European Call Option

Now we are going to value an European call option using Monte-Carlo. The setup is very simple, we just need to sum up the payoffs from a bunch of sample paths and then take the average. First start with an empty program except for the random number generator, as follows

Visual Studio 2012 at the University of Manchester

Getting started on Visual Studio 2012
A previous post of mine dealt with setting up an empty project on Visual Studio 2012, which you can find if you click here. If you follow the instructions there you will find that the terminal disappears even when you run the program with "Start Without Debugging". This is because some of the default properties are not set up correctly on opening an empty project.