Description 
Consider a Bermudan put option on a dividend paying stock. The current stock price is $45, the option strike price is $44, the riskless rate is 5% (expressed on an actual/365 basis), and the option maturity date is 30 December 2003. What is the value of the option assuming a valuation date of 15 February 2003, and the schedule of exercise dates and dividend payments displayed below?



Exercise Dates 
Div Pay Date 
Dividend 



. 





30/4/2003 
30/5/2003 
$0.75 



30/5/2003 
30/11/2003 
$0.75 



30/6/2003 





30/7/2003 





30/8/2003 





30/9/2003 





30/10/2003 





30/11/2003 





30/12/2003 










Function Specification 
=oBIN2(2, 3, "15/2/03", "30/12/03", 45, 44, 0.25, 0.05, D5:E6, F5:F13, 200, 0) 





Parameter Name 
Parameter Value 



. 



CallPut 
2 



Exercise Style 
3 



Value Date 
15/2/03 



Maturity Date 
30/12/03 



Spot 
$45 



Exercise 
$44 



Volatility 
0.25 



Risk Free 
0.05 



Dividends 
D5:E6 



Exercise Dates 
F5:F13 



Steps 
200 



Output Flag 
0 



Where the cell range D5:D6 contains the dividend schedule, and the cell range F5:F13 contains the exercise date schedule.


Solution 
Because this option has a Bermudan exercise style, the most appropriate valuation approach is supported by the oBIN2( ) function. Applying the function specification as given above with 200 time steps, the return results are as follows: OV = $3.389682 




Greeks 
The following Greeks are computed using the formulas specified in oBIN( ) Model Greeks: 

Delta 
0.407680 

Gamma 
0.039189 

Theta 
1.273586 

Vega 
15.699351 

Rho 
15.563895 
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