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

Convergence of discrete time option pricing models under stochastic interest rates

Contents:

Author Info

  • O. Scaillet

    ()
    (Institut d'Administration et de Gestion and Département des Sciences Economiques, Université Catholique de Louvain, 3 Place Montesquieu, B-1348 Louvain-la-Neuve, Belgique Manuscript)

  • J.-L. Prigent

    ()
    (THEMA, Université de Cergy-Pontoise, 33 bd du Port, F-95011 Cergy-Pontoise, France)

  • J.-P. Lesne

    ()
    (THEMA, Université de Cergy-Pontoise, 33 bd du Port, F-95011 Cergy-Pontoise, France)

Abstract

We analyze the joint convergence of sequences of discounted stock prices and Radon-Nicodym derivatives of the minimal martingale measure when interest rates are stochastic. Therefrom we deduce the convergence of option values in either complete or incomplete markets. We illustrate the general result by two main examples: a discrete time i.i.d. approximation of a Merton type pricing model for options on stocks and the trinomial tree of Hull and White for interest rate derivatives.

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://link.springer.de/link/service/journals/00780/papers/0004001/00040081.pdf
Download Restriction: Access to the full text of the articles in this series is restricted

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 Springer in its journal Finance and Stochastics.

Volume (Year): 4 (2000)
Issue (Month): 1 ()
Pages: 81-93

as in new window
Handle: RePEc:spr:finsto:v:4:y:2000:i:1:p:81-93

Note: received: January 1998; final version received: February 1999 received: January 1998; final version received: February 1999
Contact details of provider:
Web page: http://www.springerlink.com/content/101164/

Order Information:
Web: http://link.springer.de/orders.htm

Related research

Keywords: Weak convergence; incomplete market; option pricing; minimal martingale measure; stochastic interest rate; trinomial tree;

Other versions of this item:

Find related papers by JEL classification:

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. Markus Leippold & Zvi Wiener, 2005. "Efficient Calibration of Trinomial Trees for One-Factor Short Rate Models," Review of Derivatives Research, Springer, vol. 7(3), pages 213-239, October.
  2. Prigent, Jean-Luc & Renault, Olivier & Scaillet, Olivier, 2004. "Option pricing with discrete rebalancing," Journal of Empirical Finance, Elsevier, vol. 11(1), pages 133-161, January.
  3. J.L. Prigent & O. Scaillet, 2000. "Weak Convergence of Hedging Strategies of Contingent Claims," THEMA Working Papers 2000-50, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  4. Johannes Leitner, 2000. "Convergence of Arbitrage-free Discrete Time Markovian Market Models," CoFE Discussion Paper 00-07, Center of Finance and Econometrics, University of Konstanz.

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:spr:finsto:v:4:y:2000:i:1:p:81-93. 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: (Guenther Eichhorn) 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.