stttree

Build standard trinomial tree

Syntax

STTTree = stttree(StockSpec,RateSpec,TimeSpec)

Description

STTTree = stttree(StockSpec,RateSpec,TimeSpec) builds a standard trinomial (STT) tree.

Examples

Build a STTTree

Create a RateSpec.

StartDates = 'Jan-1-2014'; 
EndDates = 'Jan-1-2018'; 
Rates = 0.025; 
Basis = 1; 
Compounding = -1;
RateSpec = intenvset('ValuationDate', StartDates, 'StartDates', StartDates,...
'EndDates', EndDates, 'Rates', Rates,'Compounding', Compounding, 'Basis', Basis)

RateSpec = struct with fields:
           FinObj: 'RateSpec'
      Compounding: -1
             Disc: 0.9048
            Rates: 0.0250
         EndTimes: 4
       StartTimes: 0
         EndDates: 737061
       StartDates: 735600
    ValuationDate: 735600
            Basis: 1
     EndMonthRule: 1

Create a StockSpec.

AssetPrice = 55; 
Sigma = 0.22; 
Div = 0.02; 
StockSpec = stockspec(Sigma, AssetPrice, 'continuous', Div)

StockSpec = struct with fields:
             FinObj: 'StockSpec'
              Sigma: 0.2200
         AssetPrice: 55
       DividendType: {'continuous'}
    DividendAmounts: 0.0200
    ExDividendDates: []

Create a Standard Trinomial Tree (STTTree).

NumSteps = 8;
TimeSpec = stttimespec(StartDates, EndDates, NumSteps);
STTT = stttree(StockSpec, RateSpec, TimeSpec)

STTT = struct with fields:
       FinObj: 'STStockTree'
    StockSpec: [1x1 struct]
     TimeSpec: [1x1 struct]
     RateSpec: [1x1 struct]
         tObs: [0 0.5000 1 1.5000 2 2.5000 3 3.5000 4]
         dObs: [1x9 double]
        STree: {1x9 cell}
        Probs: {1x8 cell}

Input Arguments

StockSpec — Stock specification for underlying asset

structure

Stock specification for underlying asset, specified using StockSpec obtained from stockspec. For information on the stock specification, see stockspec.

stockspec can handle other types of underlying assets. For example, stocks, stock indices, and commodities. If dividends are not specified in StockSpec, dividends are assumed to be 0.

Data Types: struct

RateSpec — Interest-rate term specification of initial risk-free rate curve

structure

Interest-rate term specification of initial risk-free rate curve, specified by the RateSpec obtained from intenvset. For information on the interest-rate specification, see intenvset.

Data Types: struct

TimeSpec — Tree time layout specification

structure

Tree time layout specification, specified using stttimespec to define the observation dates of the standard trinomial (STT) tree.

Data Types: struct

Output Arguments

STTTree — Tree specifying stock and time information for a standard trinomial (STT) tree

tree structure

Tree specifying stock and time information for a standard trinomial (STT) tree, returned as a tree structure.