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Looking Forward to Pricing Options from Binomial Trees

Author

Listed:
  • Dario Villani

    (Department of Physics and Astronomy Rutgers University)

  • Andrei E. Ruckenstein

    (Department of Physics and Astronomy Rutgers University)

Abstract

We reconsider the valuation of barrier options by means of binomial trees from a "forward looking" prospective rather than the more conventional "backward induction" one used by standard approaches. Our reformulation allows us to write closed-form expressions for the value of European and American put barrier-options on a non-dividend-paying stock.

Suggested Citation

  • Dario Villani & Andrei E. Ruckenstein, 2000. "Looking Forward to Pricing Options from Binomial Trees," Finance 0004009, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpfi:0004009
    Note: Type of Document - tar/gz; prepared on UNIX Sparc TeX; to print on PostScript; pages: 12 ; figures: included
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    Cited by:

    1. feng dai, 2004. "The Partial Distribution: Definition, Properties and Applications in Economy," Econometrics 0403008, University Library of Munich, Germany.

    More about this item

    Keywords

    Binomial trees; barrier options;

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • D9 - Microeconomics - - Micro-Based Behavioral Economics

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