FA-61537 / Options payoff and settlement / Member archive

Cox-Ross-Rubinstein American option tree: up and down probabilities are attached to the wrong children · case 02

Continuation values are biased toward the down state.

Member previewVariant 2 · 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 continuation weighting 1	`20.16018`	`20.610754`	Failed

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