Hi, 1) At the bottom of page 4 of Chapter 10, it says,"An implied trinomial tree can be constructed by calibrating the tree to the market prices of certain derivative...." I know what a trinomial tree is, but dont know about implied trinomial tree. And what does this bullet point try to tell you? 2) At the bottom of page 12 of this chapter, it mentioned closed-form pricing formula exists, what is closed-form pricing formula? Then I suppose there exits open-form pricing formula too? 3) On Q&A Bank Part 4, question 10, part iii), please could anyone tell me where this delta of 5500 comes from? In the question it says derivative delta is 53.7 but its not used in the answer at all. I'd appreciate alot if anyone can help.
cant help on 1) any more than than to say It's probably getting at the volatlity term structure??? 2) It means that there is no point in using a numerical/monte carlo approximation if we can use a forumala such as Garman-Kohlhagen to price the derivative. 3) dunno. Intuitively, 5500 seems a bit high!
http://www.ederman.com/new/docs/gs-implied_trinomial_trees.pdf http://en.wikipedia.org/wiki/Closed-form_expression
Hi, Thanks again for the links. I see your point now. Do you know the answer for the 3rd query that i raised? Many thanks.
