Vanilla terminal payoff tree derived from FD-03 stock tree
Definitionfd05_vanillaTerminalTreebarrier-optionsfd05financial-derivatives
The vanilla tree applies the terminal reward to the FD-03 stock-price tree, preserving each full history.
Definition code
import Mathlib.Data.Real.Basic
import Definitions.Def_fd03_BinomialMarket
import Definitions.Def_fd03_PayoffTree
import Definitions.Def_fd03_payoffTreeMap
import Definitions.Def_fd03_terminalStockTree
namespace FinancialDerivatives.FD05
open FinancialDerivatives.FD03
/-- Vanilla reward on the actual full terminal stock tree. -/
noncomputable def vanillaTerminalTree (m : BinomialMarket) (N : ℕ)
(g : ℝ → ℝ) : PayoffTree N :=
payoffTreeMap g N (terminalStockTree m N m.initialSpot)
end FinancialDerivatives.FD05Source
Wilmott, Howison and Dewynne (1995), The Mathematics of Financial Derivatives, Chapter 12, pp. 206–212. Rigorous finite-binomial first-hit analogue.