#TITLE_ALTERNATIVE#

• Main Author: SUCA PIRANTI (NIM 10105047); Pembimbing: Dr. Kuntjoro Adji Sidarto, JULINI
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/18775
• Institution: Institut Teknologi Bandung

Many types of-so called exotic options are now popular items in the over-the-counter market and they must be priced using approximation methods. Standard lattice techniques based on binomial and trinomial trees are a powerful and flexible tool for pricing di¤erent types of options. They will achieve correct valuations asymptotically. They can also generally handle American exercise. However, in the case of barrier options, convergence may be slow and erratic, producing large errors even with thousands of time steps and node calculations. The naive binomial method also has led to inaccurate results for capped options. To correct it, some modifications were made given by Boyle-Lau's binomial method. Boyle-Lau arrange the number of time steps so that a horizontal layer of nodes is just beyond the barrier, and as close as possible to it. Apart from that, a procedure is developed for the valuation of options when there are two underlying state variables, involves an extension of the lattice binomial approach developed by Cox, Ross, and Rubinstein to value options on a single asset. The accuracy of the method is illustrated by valuing options on the maximum and minimum of two assets and comparing the results for cases in which an exact solution has been obtained for European options.