Multinomial approximating models for options with k state variables

Multinomial approximating models for options with k state variables

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Article ID: iaor19921359
Country: United States
Volume: 37
Issue: 12
Start Page Number: 1640
End Page Number: 1652
Publication Date: Dec 1991
Journal: Management Science
Authors: ,
Keywords: investment, stochastic processes
Abstract:

Contingent claims whose values depend on multiple sources of uncertainty arise in many financial contracts and in the analysis of real projects. Unfortunately closed form solutions for these options are rare and numerical methods can be computationally expensive. This article extends the literature on multinomial approximating models. Specifically, new multinomial models are presented that include as special cases existing models. The more general models are shown to be computationally more efficient.

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