Two-Step Bermudan Put Options

Posted by Chun-Yuan Chiu

Input:
Initial underlying asset price
Strike price
Time to maturity Years
Risk free interest rate (annulized)
Volatility (annulized)
Time to early exercise point Years
Output:
Option value

Derivation:

Derivation of the Pricing Formulae for Two-Step Bermudan Put Options

A closed form solution for pricing two-step Bermudan put options, a discrete type of American style option which allows early-exercise at only one point. The calculation is based on the Black-Scholes model

Tagged: Bermudan Option, American Option

 •  Mar 1, 2014  • 

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