Binomial Option Pricing

http://investexcel.net
This spreadsheet compares Option Pricing results calculated via a Binomial method and via an analytical solution of the Black
Read this tutorial so you fully understand the principles
http://investexcel.net/736/binomial-option-pricing-excel
Parameters
Stock Price S0
Exercise Price X
Interest Rate r
Volatility
Time to Maturity
Number of Steps
Dividend Yield

4
4
0.04
0.1
5
5
0

Calculations
Time Interval
Up movement
Down movement
Up probability
Discount Factor

1
1.10517
0.90484
0.67873
0.96079

Step
Time

Call
Put

u
d = 1/u

0
0

Sn u

Stock Price

Results
Binomial BS Analytical
0.8077777 0.806877174
0.0827007 0.081800186

1
1

2
2

3
3

4
4

5
5

4 4.420684 4.886 5.3994352

3.61935
4 4.4206837
3.275 3.6193497
2.9632729
dS

5.967298791
4.885611033
4
3.274923012
2.681280184

6.594885083
5.39943523
4.420683672
3.619349672
2.963272883
2.426122639

2.124141034
1.042453276
0.27433683
0
0

2.594885083
1.39943523
0.420683672
0
0
0

d2 S0
Option Price

0.80778
Call
Price

1.05072 1.349 1.7069698

0.397128 0.554 0.7644851
0.117 0.1789009
0

SN

max(SN

analytical solution of the Black Scholes equation

omial-option-pricing-excel
Calculations (Black Scholes analytical solution)
Call
Value
Delta
Gamma
Vega
Theta

max(SN X, 0)

Put

d1

d2

nd1

nd2

n_dash_d1

0.806877
0.0818 1.006231 0.782624 0.842848 0.783076 0.240463
0.842848 -0.15715
0.268846 0.268846
2.150768 2.150768
-0.12409 0.006909