This Python script helps financial enthusiasts and professionals understand the dynamics of American put options by calculating their exercise boundary. In simple terms, the exercise boundary represents the optimal stock prices at which it's best to cash in the put option early.
The script employs the binomial pricing model to generate a tree of possible stock prices and then iterates through it to determine the exercise boundary. By tweaking parameters like initial stock price, volatility, and time to expiration, users can see how these factors influence the decision to exercise the option.
After crunching the numbers, the script visualizes the exercise boundary curves, providing a clear picture of how different scenarios play out. It's a handy tool for anyone looking to grasp the nuances of options trading and risk management.
So whether you're a finance student eager to learn or a seasoned professional seeking deeper insights, this script has got you covered. Dive in, explore, and uncover the secrets of American put options!