The CompoundBin function calculates the theoretical price, sensitivities, the implied volatility, and the implied strike value of an American or European style compound option using a binomial model. This model evaluates compound options where the compound option and the underlying option both expire at the same time. See Multiple Exercise Options for a further explanation.
CompoundBin 
(ExerciseType, OptionType, ModelStatistic, Asset, StrikeOption, StrikeUnderly, TimeExpire, Volatility, InterestRate, YieldRate, Iterations, MarketPrice, TimeFormat, InterestType, YieldType) 
Note: Optional arguments are shown in Italics. MarketPrice is not Optional for the Implied Calculations.
Argument 
Description 
ExerciseType 
Alphanumeric value indicating the exercise type: •American = 0 or "a" (case insensitive) •European = 1 or "e" (case insensitive) 
OptionType 
Alphanumeric value indicating the type of option: •Call_Call = 1 or "cc" (call option on a call option) •Call_Put = 2 or "cp" (call option on a put option) •Put_Call = 3 or "pc" (put option on a put option) •Put_Put = 4 or "pp" (put option on a put option) 
ModelStatistic 
Numeric value indicating the type of function required for the return value: •Theoretical = 1 •Delta = 2 •Gamma = 3 •Theta = 4 •ImpliedVol = 5 •Vega = 6 •Rho = 7 •Psi = 8 •Lambda = 9 •UnderlyStrikeSensativity = 58 •UnderlyImpliedStrike = 59 •OptionStrikeSensativity = 60 •OptionImpliedStrike = 61 
Asset 
The price of the underlying asset. Must be > 0. 
StrikeOption 
The price at which the compound option can be purchased if the option is a call or sold if the option is a put. Must be > 0. 
StrikeUnderly 
The price at which the underlying asset can be purchased if the option is a call or sold if the option is a put. Must be > 0. 
TimeExpire 
Time, expressed in either Days or Years (depending on the TimeFormat value), until the expiration compound and underlying options. Must be > 0. 
Volatility 
Annualized volatility of the underlying security. Must be > 0. 
InterestRate 
Riskfree interest rate expressed as a percentage. This rate is interpreted as a continuously compounded rate unless otherwise specified in the InterestType argument. Must be > 0. 
YieldRate 
Yield, expressed as a percentage (dividends or interest yield), of the underlying asset price. This rate is interpreted as a continuously compounded rate unless specified otherwise in the YieldType argument. 
Iterations 
The number of iterations used for the trinomial model. Must be between 5 and 500. 
MarketPrice 
Optional. The selling price of the option in the marketplace. This input is required when implied volatility and strike are calculated. Price must be > 0. 
TimeFormat 
Optional. Alphanumeric value indicating the format of the time arguments (i.e. TimeExpire). If omitted, Days are used as the default. Specified as either: •Days = 0 or "D" (case insensitive) •Years = 1 or "Y" (case insensitive) 
InterestType 
Optional. Alphanumeric value indicating the type of InterestRate to use when evaluating the option. This value is converted to Continuously Compounded for the calculations. If omitted, a Continuously Compounded rate is used. 
YieldType 
Optional. Alphanumeric value indicating the type of YieldRate to use when evaluating the option. This value is converted to Continuously Compounded for the calculations. If omitted, a Continuously Compounded rate is used. 
Example
Calculate all of functions for an American compound call on put option whose asset price 225 days from expiration is $66. The exercise price of the compound call is $3.5, the exercise price of the underlying call is $70, the riskfree interest rate is 8% per annum, the yield rate is 5.25% per annum, and the annual volatility is 20%. All of the rates are considered continuous and Iterations = 100. So, 
Input 

Output 

Variable 
Value 

Function 
Name 
Value 
ExerciseType 
American 

1 
Theoretical: 
3.841591 
OptionType 
2 (Call on Put) 

2 
Delta: 
0.456361 
Asset 
66 

3 
Gamma: 
0.041088 
StrikeOption 
3.5 

4 
Theta: 
0.006695 
StrikeUnderly 
70 

5 
Implied Vol.: 
0.207964 
TimeExpire 
225 

6 
Vega: 
0.198901 
Volatility 
20% 

7 
Rho: 
0.150289 
InterestRate 
8% 

8 
Psi: 
0.135487 
YieldRate 
5.25% 

9 
Lambda: 
7.840450 
MarketPrice 
4 

58 
UnderlyStrikeSens: 
0.525123 
TimeFormat 
Days 

59 
UnderlyImpliedStrike: 
70.300777 



60 
OptionStrikeSens: 
0.525123 



61 
OptionImpliedStrike: 
3.199221 