Risk Management Assignment Resubmission

Group 11: Member: Leting Liu, Haifeng Gan, Lingting Fan

Our Parameter:
Stock price = 50
Strike Price = 52
Risk free rate = 10%
Time = 5 months
Volatility = 22.4%

Plus, when we use Binomial Model, u=e t , d=e t

Where =22.4
1 Compare the Black Scholes model with the Binomial Model
in different maturity 1 month to 5 month

European Call Option:

Maturity BS Model Call Binomial Model Delta Delta
(n=10) Call (BS) (Binomial)
1m 0.6722 0.6472 0.3280 0.317
2m 1.3298 1.3582 0.4203 0.414
3m 1.9089 1.9563 0.4727 0.466
4m 2.4406 2.4959 0.5076 0.501
5m 2.9396 2.9979 0.5355 0.529

European Put Option:

Maturity BS Model Put Binomial Model Delta Delta
(n=10) Put (BS) (Binomial)
1m 2.2407 2.2157 -0.6720 -0.683
2m 2.4703 2.4987 -0.5796 -0.586
3m 2.6250 2.6724 -0.5283 -0.534
4m 2.7358 2.7911 -0.4924 -0.494
5m 2.8175 2.8758 -0.4645 -0.471
2 We divide the Binomial Model steps into 10,20,30,40,50 .
We can find that when the steps of Binomial model increase, the result of
Binomial model converge to the result of BS model.
Fix the maturity , and split into 10,20,30,40,50 periods.

Month 1
BS-Call- 0.6722
Oprice
n period 1 10 20 30 40 50
Binomial- 0.7289 0.6472 0.6812 0.6784 0.6815 0.6708
Call-
Oprice
Deltas 0.207 0.317 0.327 0.3268 0.326 0.326
(Binomial
)
Deltas 0.3280
(BS)

Month 2:
BS-Call- 1.3298
Oprice
n period 2 10 20 30 40 50
Binomial- 1.4507 1.3582 1.3114 1.3114 1.3374 1.3374
Call-
Oprice
Deltas 0.4121 0.4144 0.4157 0.4185 0.4194 0.4196
(Binomial)
Deltas 0.4203
(BS)

Month 3
BS-Call- 1.9089
Oprice
n period 3 10 20 30 40 50
Binomial- 1.9335 1.9563 1.9153 1.8936 1.9036 1.9223
Call-
Oprice
Deltas 0.4376 0.4660 0.4679 0.4688 0.4699 0.4706
(Binomial)
Deltas 0.4717
(BS)

Month 4

BS-Call- 2.4406
Oprice
n period 4 10 20 30 40 50
Binomial- 2.5303 2.4959 2.4600 2.4401 2.4271 2.4326
Call-
Oprice
Deltas 0.4965 0.5015 0.5038 0.5049 0.5055 0.506
(Binomial)
Deltas 0.5076
(BS)

Month 5
BS-Call- 2.9396
Oprice
n period 5 10 20 30 40 50
Binomial- 2.9519 2.9979 2.9666 2.9484 2.9363 2.9275
Call-
Oprice
Deltas 0.5289 0.5355 0.5316 0.5328 0.5334 0.5339
(Binomial)
Deltas 0.5355
(BS)

For Put option:

Month 1
BS-Put- 2.2407
Oprice
n period 1 10 20 30 40 50
Binomial- 2.2974 2.2157 2.2496 2.2469 2.2365 2.2393
Put-
Oprice
Deltas -0.792 -0.682 -0.673 -0.673 -0.6740 -0.673
(Binomial)
Deltas -0.6720
(BS)

Month 2
BS-Put- 2.4703
Oprice
n period 2 10 20 30 40 50
Binomial- 2.5912 2.4987 2.4519 2.4701 2.4779 2.4779
Put-
Oprice
Deltas -0.588 -0.586 -0.584 -0.5814 -0.581 -0.580
(Binomial)
Deltas -0.5796
(BS)

Month 3
BS-Put- 2.6250
Oprice
n period 3 10 20 30 40 50
Binomial- 2.6496 2.6724 2.6314 2.6097 2.6197 2.6284
Put-
Oprice
Deltas -0.562 -0.534 -0.532 -0.531 -0.530 -0.529
(Binomial)
Deltas -0.5283
(BS)

Month 4
BS-Put- 2.7358
Oprice
n period 4 10 20 30 40 50
Binomial- 2.8256 2.7911 2.7552 2.7353 2.7223 2.7278
Put-
Oprice
Deltas -0.503 -0.499 -0.496 -0.495 -0.494 -0.4938
(Binomial)
Deltas -0.4924
(BS)

Month5

BS-Put- 2.8175
Oprice
n period 5 10 20 30 40 50
Binomial- 2.8298 2.8758 2.8445 2.8262 2.8141 2.8053
Put-
Oprice
Deltas -0.485 -0.471 -0.468 -0.467 -0.4665 -0.466
(Binomial)
Deltas -0.4645
(BS)
Stock Tree and Option Tree:
Month 1-Call

Month 2-Call

Month 3-Call

Month4-Call
Month 5-Call

1 month put:

2 month Put Oprice

3 Month Put Oprice

4 month Put oprice

5 month put Oprice