Multi-purpose binomial model: Fitting all moments to the underlying geometric Brownian motion

Y. S. Kim; S. Stoyanov; S. Rachev; F. Fabozzi

doi:10.1016/j.econlet.2016.05.035

Multi-purpose binomial model: Fitting all moments to the underlying geometric Brownian motion

Y. S. Kim, S. Stoyanov, S. Rachev, F. Fabozzi

Mathematics and Statistics

Research output: Contribution to journal › Article › peer-review

12 Scopus citations

Abstract

We construct a binomial tree model fitting all moments to the approximated geometric Brownian motion. Our construction generalizes the classical Cox–Ross–Rubinstein, the Jarrow–Rudd, and the Tian binomial tree models. The new binomial model is used to resolve a discontinuity problem in option pricing.

Original language	English
Pages (from-to)	225-229
Number of pages	5
Journal	Economics Letters
Volume	145
DOIs	https://doi.org/10.1016/j.econlet.2016.05.035
State	Published - Aug 1 2016

Keywords

Binomial tree model
Geometric Brownian motion
Option pricing
Partial hedging

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10.1016/j.econlet.2016.05.035

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title = "Multi-purpose binomial model: Fitting all moments to the underlying geometric Brownian motion",

abstract = "We construct a binomial tree model fitting all moments to the approximated geometric Brownian motion. Our construction generalizes the classical Cox–Ross–Rubinstein, the Jarrow–Rudd, and the Tian binomial tree models. The new binomial model is used to resolve a discontinuity problem in option pricing.",

keywords = "Binomial tree model, Geometric Brownian motion, Option pricing, Partial hedging",

author = "Kim, {Y. S.} and S. Stoyanov and S. Rachev and F. Fabozzi",

note = "Publisher Copyright: {\textcopyright} 2016",

year = "2016",

month = aug,

day = "1",

doi = "10.1016/j.econlet.2016.05.035",

language = "English",

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journal = "Economics Letters",

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T1 - Multi-purpose binomial model

T2 - Fitting all moments to the underlying geometric Brownian motion

AU - Kim, Y. S.

AU - Stoyanov, S.

AU - Rachev, S.

AU - Fabozzi, F.

PY - 2016/8/1

Y1 - 2016/8/1

N2 - We construct a binomial tree model fitting all moments to the approximated geometric Brownian motion. Our construction generalizes the classical Cox–Ross–Rubinstein, the Jarrow–Rudd, and the Tian binomial tree models. The new binomial model is used to resolve a discontinuity problem in option pricing.

AB - We construct a binomial tree model fitting all moments to the approximated geometric Brownian motion. Our construction generalizes the classical Cox–Ross–Rubinstein, the Jarrow–Rudd, and the Tian binomial tree models. The new binomial model is used to resolve a discontinuity problem in option pricing.

KW - Binomial tree model

KW - Geometric Brownian motion

KW - Option pricing

KW - Partial hedging

UR - http://www.scopus.com/inward/record.url?scp=84978975366&partnerID=8YFLogxK

U2 - 10.1016/j.econlet.2016.05.035

DO - 10.1016/j.econlet.2016.05.035

M3 - Article

AN - SCOPUS:84978975366

SN - 0165-1765

VL - 145

SP - 225

EP - 229

JO - Economics Letters

JF - Economics Letters

ER -

Multi-purpose binomial model: Fitting all moments to the underlying geometric Brownian motion

Abstract

Keywords

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