Advanced Search
MyIDEAS: Login to save this article or follow this journal

Convergence from Discrete- to Continuous-Time Contingent Claims Prices

Contents:

Author Info

  • He, Hua
Registered author(s):

Abstract

This article generalizes the Cox, Ross, and Rubinstein (1979) binomial option-pricing model, and establishes a convergence from discrete-time multivariate multinomial models to continuous-time multidimensional diffusion models for contigent claims prices. The key to the approach is to approximate the N-dimensional diffusion price process by a sequence of N-variate, (N+1)-nomial processes. It is shown that contingent claims prices and dynamic replicating portfolio strategies derived from the discrete time models converge to their corresponding continuous-time limits. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.jstor.org/fcgi-bin/jstor/listjournal.fcg/08939454
File Function: full text
Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Society for Financial Studies in its journal Review of Financial Studies.

Volume (Year): 3 (1990)
Issue (Month): 4 ()
Pages: 523-46

as in new window
Handle: RePEc:oup:rfinst:v:3:y:1990:i:4:p:523-46

Contact details of provider:
Postal: Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.
Fax: 919-677-1714
Email:
Web page: http://www.rfs.oupjournals.org/
More information through EDIRC

Order Information:
Web: http://www4.oup.co.uk/revfin/subinfo/

Related research

Keywords:

Other versions of this item:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Damgaard, Anders, 2006. "Computation of reservation prices of options with proportional transaction costs," Journal of Economic Dynamics and Control, Elsevier, vol. 30(3), pages 415-444, March.
  2. Bertsimas, Dimitris & Kogan, Leonid & Lo, Andrew W., 2000. "When is time continuous?," Journal of Financial Economics, Elsevier, vol. 55(2), pages 173-204, February.
  3. Luenberger, David G., 1998. "Products of trees for investment analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 22(8-9), pages 1403-1417, August.
  4. Zakamouline, Valeri I., 2006. "European option pricing and hedging with both fixed and proportional transaction costs," Journal of Economic Dynamics and Control, Elsevier, vol. 30(1), pages 1-25, January.
  5. Knaut, Andreas & Madlener, Reinhard & Rosen, Christiane & Vogt, Christian, 2012. "Effects of Temperature Uncertainty on the Valuation of Geothermal Projects: A Real Options Approach," FCN Working Papers 11/2012, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
  6. Cuny, Charles J. & Jorion, Philippe, 1995. "Valuing executive stock options with endogenous departure," Journal of Accounting and Economics, Elsevier, vol. 20(2), pages 193-205, September.
  7. Ekvall, Niklas, 1996. "A lattice approach for pricing of multivariate contingent claims," European Journal of Operational Research, Elsevier, vol. 91(2), pages 214-228, June.
  8. Buss, Adrian & Uppal, Raman & Vilkov, Grigory, 2014. "Asset prices in general equilibrium with recursive utility and illiquidity induced by transactions costs," SAFE Working Paper Series 41, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
  9. Jérôme B. Detemple & Suresh Sundaresan, 1999. "Non-Traded Asset Valuation with Portfolio Constraints: A Binomial Approach," CIRANO Working Papers 99s-08, CIRANO.
  10. Ait-Sahalia, Yacine, 1996. "Testing Continuous-Time Models of the Spot Interest Rate," Review of Financial Studies, Society for Financial Studies, vol. 9(2), pages 385-426.
  11. Jirô Akahori, 2005. "A discrete Itô calculus approach to He’s framework for multi-factor discrete markets," Asia-Pacific Financial Markets, Springer, vol. 12(3), pages 273-287, September.
  12. Babbs, Simon, 2000. "Binomial valuation of lookback options," Journal of Economic Dynamics and Control, Elsevier, vol. 24(11-12), pages 1499-1525, October.
  13. Garcia, Diego, 2003. "Convergence and Biases of Monte Carlo estimates of American option prices using a parametric exercise rule," Journal of Economic Dynamics and Control, Elsevier, vol. 27(10), pages 1855-1879, August.
  14. Wael Bahsoun & Pawel Góra & Silvia Mayoral & Manuel Morales, . "Random Dynamics and Finance: Constructing Implied Binomial Trees from a Predetermined Stationary Den," Faculty Working Papers 13/06, School of Economics and Business Administration, University of Navarra.
  15. Dietmar P.J. Leisen, 1997. "The Random-Time Binomial Model," Finance 9711005, EconWPA, revised 29 Nov 1998.
  16. J.W. Nieuwenhuis & M.H. Vellekoop, 2004. "Weak convergence of tree methods, to price options on defaultable assets," Decisions in Economics and Finance, Springer, vol. 27(2), pages 87-107, December.
  17. Mark Broadie & Jérôme B. Detemple, 1996. "Recent Advances in Numerical Methods for Pricing Derivative Securities," CIRANO Working Papers 96s-17, CIRANO.
  18. Slade, Margaret E., 2001. "Valuing Managerial Flexibility: An Application of Real-Option Theory to Mining Investments," Journal of Environmental Economics and Management, Elsevier, vol. 41(2), pages 193-233, March.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:oup:rfinst:v:3:y:1990:i:4:p:523-46. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.