Computation Of Binomial Option Pricing Model With Parallel Processing On A Linux Cluster

Abstract

Binary Option Pricing Model (BOPM) is one approach that can be utilized to calculate the value of either call or put option. BOPM generally works by building a binomial tree diagram, also known as lattice diagram to explore all possible option values that occur based on the intrinsic price of the underlying asset in a range of specific time period. Due to its basic characteristics BOPM is renowned for its longer lead times in calculating option values while also acknowledged as a technique that can provide an assessment of the most fair option value. Therefore, this study aims to shorten the BOPM completion time of calculating the value of an option by building a computer cluster and presently implement the BOPM algorithm into a form that can be run in parallel processing. As an outcome, a Linux-based computer cluster has been built and conversion of BOPM algorithm so that it can be executed in parallel has been performed and also implemented using Python in this research. Conclusively, results of conducted experiments confirm that the implementation of BOPM algorithm in a form that can be executed in parallel and its application on a computer cluster was able to limit the growth of the completion time whilst at the same time maintain quality of calculated option values.