Pricing Bond Options with a Binomial Tree

This Excel spreadsheet calculates the price of a Bond option with a binomial tree.

Bond options give the purchaser the right (but not the obligation) to buy or sell a bond at or before a specific date.

If you purchase a bond call, you generally expect interest rates to decrease (with a subsequent increase the price of a bond).

However, if you purchase a bond put, you generally expect interest rates to climb, and bond prices to fall.

Bond Option Pricing in Excel

The spreadsheet uses the binomial tree model suggested by Rendleman & Bartter (1980). The one-factor model assumes that the short-rate is guided by geometric brownian motion.

Other spreadsheets use the Black 76 and the Shaefer & Schwartz models to price bond options.

Download Excel Spreadsheet to Price Bond Option with Binomial Tree


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2 thoughts on “Pricing Bond Options with a Binomial Tree

  1. Hello!

    The “Download Excel Spreadsheet to Price Bond Option with Binomial Tree” doesn’t contain a spreadsheet. Could you have a look at that? And tell me when the spreadsheet is available.

    Cheers,

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