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A review of the binomial and trinomial models for option pricing and their convergence to the Black-Scholes model determined option prices

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Title: A review of the binomial and trinomial models for option pricing and their convergence to the Black-Scholes model determined option prices

Title in english:

Przegląd dwumianowych i trójmianowych modeli wyceny opcji i ich zbieżność do modelu Blacka-Scholesa określającego wycenę opcji

Creator:

Josheski, Dushko ; Apostolov, Mico

Description:

Econometrics = Ekonometria, 2020, Vol. 24, No. 2, s. 53-85

Abstrakt:

This paper reviews the binomial and trinomial option pricing models and their convergence to the Black-Scholes model result. These models are generalized for the European and American options. The trinomial models are said to be more accurate than the binomial when fewer steps are modelled. These models are widely used for the usual vanilla option types, European or American options, that respectively can be exercised only at the expiration date and at any time before the expiration date. The results are supportive of the conventional wisdom that trinomial option pricing models such as the Kamrad-Ritchken model and the Boyle model are converging faster than the binomial models. When binomial models are compared in terms of convergence, the most efficient model is the Jarrow-Rudd model. This paper concludes that improved binomial models such as the Haahtela model are converging faster to the BS model result. After some trials, binomial distribution follows log-normal distribution assumed by the Black-Scholes model

Publisher:

Wydawnictwo Uniwersytetu Ekonomicznego we Wrocławiu

Place of publication:

Date:

Resource Type:

Resource Identifier:

doi:10.15611/eada.2020.2.05 ; oai:dbc.wroc.pl:75973

Language:

Relation:

Econometrics = Ekonometria, 2020, Vol. 24, No. 2

Rights:

Pewne prawa zastrzeżone na rzecz Autorów i Wydawcy

Access Rights:

Dla wszystkich zgodnie z licencją

License:

CC BY-NC-ND 3.0 PL

Location:

Uniwersytet Ekonomiczny we Wrocławiu

Group publication title:

Ekonometria = Econometrics

Subject and keywords:

Black-Scholes-Merton (models) Leisen-Reimer, Cox-Ross-Rubinstein (models) Tian, Trigeorgis (models)

Object collections:

Last modified:

Jun 11, 2022

In our library since:

Jul 23, 2020

Number of object content hits:

276

All available object's versions:

https://dbc.wroc.pl/publication/145644

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Ekonometria = Econometrics

Edition name	Date
A review of the binomial and trinomial models for option pricing and their convergence to the Black-Scholes model determined option prices	Jun 11, 2022

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