FA-61524 / Options payoff and settlement / Member archive

Cox-Ross-Rubinstein American option tree: the growth factor uses simple interest · case 04

Tree prices drift from the stated continuous-compounding model.

Member previewVariant 4 · 3 implementations · 8 checks per implementation

Case contract

Inputs kind, spot S, strike K, rate r, volatility sigma, maturity T in years and steps. dt=T/steps, u=exp(sigma*sqrt(dt)), d=1/u, p=(exp(r*dt)-d)/(u-d), disc=exp(-r*dt). Roll back from terminal payoffs; at each node take max(continuation, immediate exercise at that node's price). Return the root rounded to 6.

Why this case matters

Option expiry, exercise and settlement engines move cash and shares; a wrong branch misstates obligations.

One recorded failure

Sample boundary fixture

This sample comes from the broken implementation of a controlled reproducer.

Boundary fixture	Actual	Expected	Outcome
regression risk-neutral probability 1	`1.470089`	`1.469382`	Failed

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