Hi,
I observed an interesting effect while pricing vanilla european options
with the BinomialVanillaEngine and a CoxRossRubinstein Tree (100 steps).
I priced call options with the following data:
TimeToMaturity: 300 days
Strike 1200
Spot 2500
dividend yield 2%
interest rate 3%
volatility 16%.
this gives a price for the call of 1288.466694
increasing the vola to 17% leads to a price of 1288.466679
which is smaller!
I observed this also with other calls which are deep in the money.
It causes me serious problems since I want to calculate implied volas
and need a monotone function (to map volas to prices).
Adding more steps reduces the problem in absolut numbers, but it is still there.
Can anyone help?
Best regards
Mathias
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