Option Pricing Trees

JOURNAL OF DERIVATIVES Vol 2 No 4

Posted: 10 Oct 1998

Abstract

This article provides a selective description of numerical techniques for option valuation when the underlying model is based on certain kinds of diffusion processes. It emphasizes models based on discretizing the underlying process on a finite state space at discrete points in time and describes techniques for building both path-dependent and path-independent discrete-time models that can approximate a given continuous-time process for the underlying state variables. Monte Carlo methods or numerical methods for solving partial differential equations are almost completely ignored. In the interest of clarity, the focus is on specific processes to illustrate the basic principles, forgoing technical details that may cloud the basic concepts. The major focus is on describing models that can be realistically implemented in practice.

JEL Classification: G13

Suggested Citation

Amin, Kaushik I., Option Pricing Trees. JOURNAL OF DERIVATIVES Vol 2 No 4, Available at SSRN: https://ssrn.com/abstract=6474

Kaushik I. Amin (Contact Author)

Lehman Brothers ( email )

9th Floor
New York, NY 10013
United States
212-526-8883 (Phone)
212-212 528-6187 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
1,754
PlumX Metrics