IJSSER

Title: DERIVATIVE PRICING USING BINOMIAL TREE SIMULATION
Authors: Jiajun Wu
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Jiajun Wu North Creek High School, Washington
MLA 8 Wu, Jiajun. "DERIVATIVE PRICING USING BINOMIAL TREE SIMULATION." Int. j. of Social Science and Economic Research, vol. 7, no. 8, Aug. 2022, pp. 2723-2731, doi.org/10.46609/IJSSER.2022.v07i08.027. Accessed Aug. 2022. APA 6 Wu, J. (2022, August). DERIVATIVE PRICING USING BINOMIAL TREE SIMULATION. Int. j. of Social Science and Economic Research, 7(8), 2723-2731. Retrieved from https://doi.org/10.46609/IJSSER.2022.v07i08.027 Chicago Wu, Jiajun. "DERIVATIVE PRICING USING BINOMIAL TREE SIMULATION." Int. j. of Social Science and Economic Research 7, no. 8 (August 2022), 2723-2731. Accessed August, 2022. https://doi.org/10.46609/IJSSER.2022.v07i08.027.
References [1]. Hirsa, Ali. Computational Methods in Finance. CRC Press, 2012. [2]. Hull, John. Options, Futures and Other Derivatives. Pearson/Prentice Hall, 2009. [3]. Shreve, Steven. Stochastic Calculus for Finance I: The Binomial Asset Pricing Model. Springer-Verlag, 2004. [4]. Yahoo Finance - Stock Market Live, Quotes, Business & Finance News. https://finance.yahoo.com/
ABSTRACT: Since financial derivatives have been invented for hedging, it has grown tremendously in assets amount. Understanding how option derivative is priced could help investors to make better investment decision. In this project, I study the binomial asset pricing model for stock prices. The pricing model is visualized and validated with Monte Carlo simulation. Further, I employed the binomial tree asset pricing model and Monte Carlo simulation to derive the price of JP.Morgan option price. The outputted model price matches almost exactly the option price we observe in the financial market. The studies thus might justify a potential arbitrage method to exploit the mid-priced financial derivatives.

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