Convergence from Discrete- to Continuous-Time Contingent Claims Prices
AbstractThis 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.
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Bibliographic InfoArticle provided by Society for Financial Studies in its journal Review of Financial Studies.
Volume (Year): 3 (1990)
Issue (Month): 4 ()
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Other versions of this item:
- Hua He., 1990. "Convergence from Discrete to Continuous Time Contingent Claims Prices," Research Program in Finance Working Papers RPF-199, University of California at Berkeley.
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