Bivariate Binomial Options Pricing with Generalized Interest Rate Processes
AbstractWe extend existing pricing models and develop a bivariate binomial option pricing technique that accommodates correlated state variables. This technique offers the ability to price American-style options, thereby accommodating early exercise, despite the existence of two correlated underlying state variables. Our technique is computationally efficient and can be further generalized for multiple-state variables, albeit with an accompanying rise in computational expense.
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Bibliographic InfoArticle provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.
Volume (Year): 19 (1996)
Issue (Month): 4 (Winter)
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