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An Autoregressive Conditional Binomial Option Pricing Model

Listed author(s):
  • Olivier Renault
  • Jean-Luc Prigent
  • Olivier Scaillet

This paper offers an option pricing framework grounded in econometric microstructure modelling. We consider a model where stock price dynamics follow a pure jump process with constant jump size similar to a binomial setting with random time steps. Jump arrival times are described as an Autoregressive Conditional Duration (ACD) process while conditional probabilities of up-moves and down-moves are given by the logistic transformation of an autoregressive prices. We derive no-arbitrage pricing formulae under the minimal martingale measure and illustrate the use of our Autoregressive Conditional Binomial (ACB) option pricing model on intraday IBM stock date.

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File URL: http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmg_pdfs/dp364.pdf
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Paper provided by Financial Markets Group in its series FMG Discussion Papers with number dp364.

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Date of creation: Nov 2000
Handle: RePEc:fmg:fmgdps:dp364
Contact details of provider: Web page: http://www.lse.ac.uk/fmg/

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