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Random Dynamics and Finance: Constructing Implied Binomial Trees from a Predetermined Stationary Den

Author

Listed:
  • Wael Bahsoun

    (University of Victoria)

  • Pawel Góra

    (Concordia University)

  • Silvia Mayoral

    (Universidad de Navarra)

  • Manuel Morales

    (University of Montreal)

Abstract

We introduce a general binomial model for asset prices based on the concept of random maps. The asymptotic stationary distribution for such model is studied using techniques from dynamical systems. In particular, we present a technique to construct a general binomial model with a predetermined stationary distribution. This technique is independent of the chosen distribution making our model potentially useful in financial applications. We brie y explore the suitability of our construction as an implied binomial tree.

Suggested Citation

  • Wael Bahsoun & Pawel Góra & Silvia Mayoral & Manuel Morales, 2006. "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.
  • Handle: RePEc:una:unccee:wp1306
    as

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    File URL: http://www.unav.edu/documents/10174/6546776/1160726031_wp1306.pdf
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    References listed on IDEAS

    as
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