Sub ss()

‘ Calculates European or American option prices using the Cox, Ross, Rubinstein binomial lattice

‘ Spot = Spot Price of the underlying

‘ K = Strike Price

‘ T = Option Maturity in Years

‘ rf = Interest Rate in decimal (i.e, for 5%, use 0.05)

‘ vol = Yearly volatility of the underlying in decimal

‘ n = Number of time steps

‘ OpType = ‘C’ for Call and ‘P’ for Put

‘ ExType = ‘A’ for American and ‘E’ for European

‘volopta

Function CRRTree(Spot, K, T, rf, vol, n, OpType As String, ExType As String)

dt = T / n

u = Exp(vol * (dt ^ 0.5))

d = 1 / u

p = (Exp(rf * dt) – d) / (u – d)

‘ Tree for stock price

Dim S() As Double

ReDim S(n + 1, n + 1) As Double

For i = 1 To n + 1

For j = i To n + 1

S(i, j) = Spot * u ^ (j – i) * d ^ (i – 1)

Next j

Next i

‘ Calculate Terminal Price for Calls and Puts

Dim Op() As Double

ReDim Op(n + 1, n + 1) As Double

For i = 1 To n + 1

Select Case OpType

Case “C”: Op(i, n + 1) = Application.Max(S(i, n + 1) – K, 0)

Case “P”: Op(i, n + 1) = Application.Max(K – S(i, n + 1), 0)

End Select

Next i

‘ Calculate Remaining entries for Calls and Puts

For j = n To 1 Step -1

For i = 1 To j

Select Case ExType

Case “A”:

If OpType = “C” Then

Op(i, j) = Application.Max(S(i, j) – K, Exp(-rf * dt) * (p * Op(i, j + 1) + (1 – p) * Op(i + 1, j + 1)))

ElseIf OpType = “P” Then

Op(i, j) = Application.Max(K – S(i, j), Exp(-rf * dt) * (p * Op(i, j + 1) + (1 – p) * Op(i + 1, j + 1)))

End If

Case “E”:

Op(i, j) = Exp(-rf * dt) * (p * Op(i, j + 1) + (1 – p) * Op(i + 1, j + 1))

End Select

Next i

Next j

CRRTree = Op(1, 1)

End Function