Bermudan options with the binomial model
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Bermudan Options with the Binomial Model. Sheila Farrahi Amirhossein Heydarizadeh Oluwayinka Ogunniyi . Bermudan Option. Like Bermudian islands which are located between Europe and America, Bermudan options are a combination of American and European options .

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Bermudan options with the binomial model

Bermudan Options with the Binomial Model

Sheila Farrahi

Amirhossein Heydarizadeh

Oluwayinka Ogunniyi


Bermudan option
Bermudan Option

  • Like Bermudian islands which are located between Europe and America, Bermudan options are a combination of American and European options.

  • Bermudan option is a type of option which can only be exercised at specific dates between the issue date and maturity.


Binomial model
Binomial Model

  • Binomial model is a very popular model for option pricing, Binomial tree shows different ways that stock price can move during option’s life time based on certain probability of moving up or either down.


Binomial model1
Binomial Model

  • Cox-Ross-Rubenstein formula is the most common formula for the binomial tree so in our model we used Cox-Ross-Rubenstein formulas.


European options
European Options

  • European put and call option at the final nodes:

  • Other nodes:


American options
American Options

  • American put and call option at the final nodes:

  • Other nodes:


Bermudan option with binomial model
Bermudan Option with Binomial Model

  • Consider a 6-step binomial tree with T=1.5 year and the Bermudan option can only be exercised once a year.


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