Generalized Binomial Trees
AbstractWe consider the problem of consistently pricing new options given the prices of related options on the same stock. The Black-Scholes formula and standard binomial trees can only accommodate one related European option which then effectively specifies the volatility parameter. Implied binomial trees can accommodate only related European options with the same time-to-expiration. The generalized binomial trees introduced here can accommodate any kind of related options (European, American, or exotic) with different times-to-expiration.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 11635.
Date of creation: 19 Aug 1996
Date of revision: 12 May 1997
Generalized; Binomial; Tree; Trees;
Other versions of this item:
- G19 - Financial Economics - - General Financial Markets - - - Other
- G0 - Financial Economics - - General
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- Moriggia, V. & Muzzioli, S. & Torricelli, C., 2009. "On the no-arbitrage condition in option implied trees," European Journal of Operational Research, Elsevier, vol. 193(1), pages 212-221, February.
- 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.
- Dasheng Ji & B. Brorsen, 2011. "A recombining lattice option pricing model that relaxes the assumption of lognormality," Review of Derivatives Research, Springer, vol. 14(3), pages 349-367, October.
- Jackwerth, Jens Carsten & Rubinstein, Mark, 2003. "Recovering Probabilities and Risk Aversion from Option Prices and Realized Returns," MPRA Paper 11638, University Library of Munich, Germany, revised 2004.
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