5.22 generate_willowtree

Function File: value = generate_willowtree (N, dk, z_method, willowtree_save_flag, path_static)

Computes the willow tree used e.g. for option pricing.
The willow tree is used as a lean and accurate option pricing lattice. This implementation of the willow tree concept is based on following literature:

• ’Willow Tree’, Andy C.T. Ho, Master thesis, May 2000
• ’Willow Power: Optimizing Derivative Pricing Trees’, Michael Curran, ALGO RESEARCH QUARTERLY, Vol. 4, No. 4, December 2001

Number of nodes must be in list [10,15,20,30,40,50]. These vectors are optimized by Currans Method to fulfill variance constraint (default: 20)

Variables:

• N: Number of timesteps in tree
• dk: timestep size of tree
• z_method: number of nodes per timestep
• willowtree_save_flag: boolean variable for saving tree to file
• path_static: path to directory if file shall be saved
• Transition_matrix: [output] optimized transition probabilities ("the Tree")
• z: [output] Z(0,1) distributed random variables used in tree

See also: option_willowtree.