| Publisher | Goldman Sachs & Co. | ||
|---|---|---|---|
| Format | 341.0KB PDF, requires Acrobat Rdr 5 | Date added | 27 Aug 2003 |
| Topics | International Standards, Currency Conversion, Online Trading | ||
| Downloads | 50 | ||
In this paper we show how you can use the smile – the prices of known, liquid, European-style index options of all available strikes and expirations – as inputs to deduce the form of the index’s random walk. More specifically, we show how you can systematically extract, from the smile, a unique binomial tree for the index corresponding to the modified random walk mentioned above. We call this the implied tree. When you use this tree to value any of the options on which it is based, it produces values that match the observed market prices. From this tree you can calculate both the distribution and the volatility of the index at future times and market levels, as implied by options prices.
Did you find this white paper useful?
25 out of 50 users found this white paper useful
Related white papers
Biometrics Direct Solutions Case Study
North Florida Regional is a 278-bed, full-service medical and surgical acute care referral center serving 14 counties and offering comprehensive heart care, cancer care, women's health, diabetes care and neuromusculoskeletal...
Configuration Assessment: Choosing the Right Solution
Configuration assessment lets businesses proactively secure their IT infrastructure and achieve compliance with important industry standards and regulations. Learn why configuration assessment is so important, why organizations find it difficult...
X.25 White Paper
In the 1970s, a set of protocols was needed to provide users with wide-area network (WAN) connectivity across public data networks (PDNs). PDNs such as TELENET and TYMNET had achieved...
Sarbanes-Oxley: Saving Money With IT Change and Asset Management Controls
Join this webcast to find out how to automate IT controls that accelerate compliance and make IT operations more efficient. Also learn how it impact IT organizations; preparing for an...
PCI-DSS: Avoiding the Data Theft Disaster
This new whitepaper considers the topical issue of how to ensure your customers credit and debit card information is securely stored and protected. The paper focuses on how to use...
PCI-DSS: Avoiding the Data Theft Disaster
This new whitepaper considers the topical issue of how to ensure your customers credit and debit card information is securely stored and protected. The paper focuses on how to use...
Enterprise Payments Vendors: The Integration Approach to Global Payments
As banks define new or updated payments strategies, they are considering their technology strategies and the vendors who support them. The formulation of this strategy hinges on whether banks retain...
