Munich Personal RePEc Archive

Generalized Binomial Trees

Jackwerth, Jens Carsten (1996): Generalized Binomial Trees. Published in: Journal of Derivatives , Vol. 5, No. 2 : pp. 7-17.

[img]
Preview
PDF
MPRA_paper_11635.pdf

Download (91Kb) | Preview

Abstract

We consider the problem of consistently pricing new options given the prices of related options on the same stock. The Black-Scholes formula and standard binomial trees can only accommodate one related European option which then effectively specifies the volatility parameter. Implied binomial trees can accommodate only related European options with the same time-to-expiration. The generalized binomial trees introduced here can accommodate any kind of related options (European, American, or exotic) with different times-to-expiration.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.