Hi everyone, Anyone have a link to the BOPM formula for American options? I'm trying to figure out what it is so I can code it up in excel. I can't understand the one on wikipedia; any help would be most appreciated. Thanks!
It is not a formula, it requires evaluating each node on the binomial tree and working backwards to the first node. Some of the mathematical details are explained at http://people.brunel.ac.uk/~icsrsss/finance/options/binomial/
If you look at the bottom of the wikipedia article you'll find a bunch of pdfs that go into it further. For coding in excel look at books by Simon Benninga and Fabrice Rouah.
If you know a bit of computer programming, the following link has some good algorithms. http://finance.bi.no/~bernt/gcc_prog/recipes/index.html