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A binomial tree to price European options

Author

Listed:
  • Brogi, Athos

Abstract

A time-changing volatility binomial tree to price European options is presented followed by an algorithm explaining how to implement the tree. Finally, the advantages of the model are listed.

Suggested Citation

  • Brogi, Athos, 2010. "A binomial tree to price European options," MPRA Paper 33604, University Library of Munich, Germany, revised Aug 2011.
  • Handle: RePEc:pra:mprapa:33604
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    File URL: https://mpra.ub.uni-muenchen.de/40697/1/MPRA_paper_40697.pdf
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    File URL: https://mpra.ub.uni-muenchen.de/55681/1/MPRA_paper_55681.pdf
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    References listed on IDEAS

    as
    1. Ciccone, Antonio, 2002. "Agglomeration effects in Europe," European Economic Review, Elsevier, vol. 46(2), pages 213-227, February.
    2. Rice, Patricia & Venables, Anthony J. & Patacchini, Eleonora, 2006. "Spatial determinants of productivity: Analysis for the regions of Great Britain," Regional Science and Urban Economics, Elsevier, vol. 36(6), pages 727-752, November.
    3. Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon & Sébastien Roux, 2010. "Estimating Agglomeration Economies with History, Geology, and Worker Effects," NBER Chapters,in: Agglomeration Economics, pages 15-66 National Bureau of Economic Research, Inc.
    4. Adam B. Jaffe & Manuel Trajtenberg & Rebecca Henderson, 1993. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 577-598.
    5. Brülhart, Marius & Mathys, Nicole A., 2008. "Sectoral agglomeration economies in a panel of European regions," Regional Science and Urban Economics, Elsevier, vol. 38(4), pages 348-362, July.
    6. Dekle, Robert & Eaton, Jonathan, 1999. "Agglomeration and Land Rents: Evidence from the Prefectures," Journal of Urban Economics, Elsevier, vol. 46(2), pages 200-214, September.
    7. Benhabib, Jess & Spiegel, Mark M., 1994. "The role of human capital in economic development evidence from aggregate cross-country data," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 143-173, October.
    8. Olivier Parent & Stéphane Riou, 2005. "Bayesian Analysis of Knowledge Spillovers in European Regions," Journal of Regional Science, Wiley Blackwell, vol. 45(4), pages 747-775.
    9. Elisabet Viladecans-Marsal, 2004. "Agglomeration economies and industrial location: city-level evidence," Journal of Economic Geography, Oxford University Press, vol. 4(5), pages 565-582, November.
    10. Anca Carrington, 2003. "A Divided Europe? Regional Convergence and Neighbourhood Spillover Effects," Kyklos, Wiley Blackwell, vol. 56(3), pages 381-393, August.
    11. John Baldwin & Desmond Beckstead & W. Mark Brown & David Rigby, 2008. "Agglomeration and the Geography of Localization Economies in Canada," Regional Studies, Taylor & Francis Journals, vol. 42(1), pages 117-132.
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    Citations

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    Cited by:

    1. Brogi, Athos, 2016. "A Binomial Tree to Price European and American Options," MPRA Paper 74962, University Library of Munich, Germany.

    More about this item

    Keywords

    Arbitrage; martingale; option; risk-neutral; volatility;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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