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On the Relation Between Binomial and Trinomial Option Pricing Models

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Author Info
Mark Rubinstein (Haas School of Business, University of California, Berkeley)
Abstract

This paper shows that the binomial option pricing model, suitably parameterized, is a special case of the explicit finite difference method.

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File URL: http://repositories.cdlib.org/cgi/viewcontent.cgi?article=1003&context=iber/finance
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Publisher Info
Paper provided by Research Program in Finance, Institute for Business and Economic Research, UC Berkeley in its series Research Program in Finance, Working Paper Series with number 1003.

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Date of creation: 01 May 2000
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Handle: RePEc:cdl:rpfina:1003

Note: oai:cdlib1:iber/finance-1003
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Related research
Keywords: binomial option pricing model; trinomial; explicit finite difference;

References listed on IDEAS
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  1. Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September. [Downloadable!] (restricted)
  2. Boyle, Phelim P., 1988. "A Lattice Framework for Option Pricing with Two State Variables," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(01), pages 1-12, March. [Downloadable!]
  3. Brennan, Michael J. & Schwartz, Eduardo S., 1978. "Finite Difference Methods and Jump Processes Arising in the Pricing of Contingent Claims: A Synthesis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 13(03), pages 461-474, September. [Downloadable!]
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This page was last updated on 2009-12-15.

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