When we derived the binomial call option pricing formula, there was a problem because we have the expression max[0,u jd n-jS-K] in the formula and it has no analytical solution. The trick we used to solve the problem is:
answer is
b. We only considered those nodes which produced positive call values and therefore, we could ignore all those ending nodes below.
please derive binomial call option and show why u ignore negative value nodes
Hi there! Click one of our representatives below and we will get back to you as soon as possible.