Random binomial tree models and options
In this study, we introduce the simplest random binomial tree model. Usual binomial tree model is prescribed by pair of numbers (u, d), where u denotes the increase rate of the stock over the fixed period of time and d denotes the decrease rate, with 0<d<1<u. We call the pair (u, d) an envi...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Asian Network for Scientific Information
2012
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| Subjects: | |
| Online Access: | http://irep.iium.edu.my/25877/ http://irep.iium.edu.my/25877/ http://irep.iium.edu.my/25877/1/Journal_of_Applied_Sciences_Random_Binomial_Tree_Models_and_Options.pdf |
| Summary: | In this study, we introduce the simplest random binomial tree model. Usual binomial tree model is prescribed by pair of numbers (u, d), where u denotes the increase rate of the stock over the fixed period of time and d denotes the decrease rate, with 0<d<1<u. We call the pair (u, d) an environment of the binomial tree model. A pair (Un, Dn), where {Un} and {Dn} be the sequences of independent, identically distributed random variables with Un>1 and 0<Dn<1<Un for all n, is called a random environment and binomial tree model with random environment is called random binomial tree model. In this paper, we define and study European call option for such models. |
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