Implied Trinomial Trees

Options are financial derivatives that, conditional on the price of an underlyingasset, constitute a right to transfer the ownership of this underlying. Morespecifically, a European call and put options give their owner the right to buyand sell, respectively, at a fixed strike price at a given date. Options areimportant financial instruments used for hedging since they can be includedinto a portfolio to reduce risk. Corporate securities (e.g., bonds or stocks)may include option features as well. Last, but not least, some new financingtechniques, such as contingent value rights, are straightforward applications ofoptions. Thus, option pricing has become one of the basic techniques in finance. [...]<br