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Price instruments using implied trinomial tree (ITT)



[Price,PriceTree] = ittprice(ITTTree,InstSet) price instruments using an implied trinomial tree (ITT) created with itttree. All instruments contained in a financial instrument variable, InstSet, are priced.

ittprice handles the following instrument types: optstock, barrier, Asian, lookback, and compound. Use instadd to construct the defined types.


[Price,PriceTree] = ittprice(___,Options) adds an optional input argument for Options.


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Load the ITT tree and instruments from the data file deriv.mat.

load deriv.mat

Display the barrier and Asian options contained in the instrument set.

ITTSubSet = instselect(ITTInstSet,'Type', {'Barrier', 'Asian'}); 

Index Type    OptSpec Strike Settle         ExerciseDates  AmericanOpt BarrierSpec Barrier Rebate Name     Quantity
1     Barrier call    85     01-Jan-2006    31-Dec-2008    1           ui          115     0      Barrier1 1       
Index Type  OptSpec Strike Settle         ExerciseDates  AmericanOpt AvgType    AvgPrice AvgDate Name   Quantity
2     Asian call    55     01-Jan-2006    01-Jan-2008    0           arithmetic NaN      NaN     Asian1 5       
3     Asian call    55     01-Jan-2006    01-Jan-2010    0           arithmetic NaN      NaN     Asian2 7       

Price the barrier and Asian options contained in the instrument set.

[Price, PriceTree] = ittprice(ITTTree, ITTSubSet)
Price = 3×1


PriceTree = struct with fields:
    FinObj: 'TrinPriceTree'
     PTree: {[3x1 double]  [3x3 double]  [3x5 double]  [3x7 double]  [3x9 double]}
      tObs: [0 1 2 3 4]
      dObs: [732678 733043 733408 733773 734139]

Input Arguments

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Implied trinomial stock tree structure, specified by using itttree.

Data Types: struct

Instrument variable containing a collection of NINST instruments, specified using instadd. Instruments are categorized by type; each type can have different data fields. The stored data field is a row vector or character vector for each instrument.

Data Types: struct

(Optional) Derivatives pricing options structure, created using derivset.

Data Types: struct

Output Arguments

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Price for each instrument, returned as a NINST-by-1 vector. The prices are computed by backward dynamic programming on the stock tree. If an instrument cannot be priced, a NaN is returned in that entry.

For information on single-type pricing functions to retrieve state-by-state pricing tree information, see the following:

  • barrierbyitt for pricing barrier options using an ITT tree

  • optstockbyitt for pricing American, European, or Bermuda options using an ITT tree

  • asianbyitt for pricing Asian options using an ITT tree

  • lookbackbyitt for pricing lookback options using an ITT tree

  • compoundbyitt for price compound options using an ITT tree

  • cbondbyitt for pricing convertible bonds using an ITT tree

Tree structure of instrument prices, returned as a MATLAB® structure of trees containing vectors of instrument prices and accrued interest, and a vector of observation times for each node. Within PriceTree:

  • PriceTree.PTree contains the clean prices.

  • PriceTree.tObs contains the observation times.

  • PriceTree.dObs contains the observation dates.

Version History

Introduced in R2007a