Showing papers on "Binomial options pricing model published in 1991"
TL;DR: An algorithm is described that prices European average options and a closed-form solution is derived for European geometric average options that is comparable to the Black-Scholes algorithm.
Abstract: An algorithm is described that prices European average options. The algorithm is tested against Monte Carlo estimates and is shown to be accurate. The speed of the algorithm is comparable to the Black-Scholes algorithm. A closed-form solution is derived for European geometric average options.
459 citations
01 Jan 1991
TL;DR: The method is a log-transformed variation of binomial option pricing designed to overcome problems of consistency, stability, and efficiency encountered in the Cox, Ross, and Rubinstein (1979) and other numerical methods.
Abstract: This paper presents a numerical method for valuing complex investments with multiple interacting options. The method is a log-transformed variation of binomial option pricing designed to overcome problems of consistency, stability, and efficiency encountered in the Cox, Ross, and Rubinstein (1979) and other numerical methods. This method handles well options with a series of exercise prices (compound options), nonproportional dividends, and interactions among a variety of real options. Comparisons with several existing numerical methods regarding accuracy, consistency, stability, and efficiency are given.
188 citations
TL;DR: In this article, a log-transformed variation of binomial option pricing is proposed to overcome problems of consistency, stability, and efficiency encountered in the Cox, Ross, and Rubinstein (1979) and other numerical methods.
Abstract: This paper presents a numerical method for valuing complex investments with multiple interacting options. The method is a log-transformed variation of binomial option pricing designed to overcome problems of consistency, stability, and efficiency encountered in the Cox, Ross, and Rubinstein (1979) and other numerical methods. This method handles well options with a series of exercise prices (compound options), nonproportional dividends, and interactions among a variety of real options. Comparisons with several existing numerical methods regarding accuracy, consistency, stability, and efficiency are given.
185 citations
TL;DR: In this paper, a convergence acceleration technique is applied to the binomial option pricing model, which is applicable to a wide range of option pricing problems, and the resulting model, termed the accelerated binomial options pricing model (ABP), also can be viewed as an approximation to the Geske-Johnson model for the value of the American put.
Abstract: This paper describes the application of a convergence acceleration technique to the binomial option pricing model. The resulting model, termed the accelerated binomial option pricing model, also can be viewed as an approximation to the Geske-Johnson model for the value of the American put. The new model is accurate and faster than the conventional binomial model. It is applicable to a wide range of option pricing problems.
126 citations
TL;DR: In this paper, a unified method for closed-form pricing of European options on assets with diffusion prices is presented, which uses linear and nonlinear time and scale changes to reduce complex diffusion processes to known processes, thereby generating option pricing formulas for new diffusion processes.
66 citations
TL;DR: In this paper, the authors draw on the results of Harrison and Kreps (J. Econ. Theory 20 (1979), 381-408) and relate them to pricing in the presence of stochastic bond price processes.
49 citations
TL;DR: The authors discusses some of the deficiencies of traditional discounted cash flow (DCF) techniques before using the basic framework of the binomial option pricing methodology of Cox et al. to derive a clear and consistent technique for the valuation of real hydrocarbon reserves.
Abstract: Over the past few years there have been a number of papers concerned with the pricing of options on real assets. The majority of these draw directly from the work done in the financial sectors. This paper discusses some of the deficiencies of traditional discounted cash flow (DCF) techniques before using the basic framework of the binomial option pricing methodology of Cox et al. [2] to derive a clear and consistent technique for the valuation of real hydrocarbon reserves.
17 citations
TL;DR: In this paper, the authors extended the binomial option-pricing model of Cox, Ross, and Rubinstein to the case where the up and down percentage changes of stock prices are stochastic.
Abstract: This research extends the binomial option-pricing model of Cox, Ross, and Rubinstein (1979) and Rendleman and Barter (1979) to the case where the up and down percentage changes of stock prices are stochastic. Assuming stochastic parameters in the discrete-time binomial option pricing is analogous to assuming stochastic volatility in the continuous-time option pricing. By assuming that the up and down parameters are independent random variables following beta distributions, we are able to derive a closed-form solution to this stochastic discrete-time option pricing. We also derive an upper and a lower bounds of the option price.
11 citations
TL;DR: The authors corrects the bond option formula presented by Rabinovitch ((1989), Equation (10)) with just one state variable driving the economy, the formula should be the same as the ones presented by Jamshidian (1989) and Chaplin (1987).
Abstract: This paper corrects the bond option formula presented by R. Rabinovitch ((1989), Equation (10)). With just one state variable driving the economy, the formula should be the same as the ones presented by Jamshidian (1989) and Chaplin (1987).
7 citations
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TL;DR: In this article, the authors outline some difficuilties, including arbitrage possibilities, with published binomial option pricing parameters, and a new set of parameters are developed and tested under exacting conditions against the more popular choices.
Abstract: This paper outlines some difficuilties, including arbitrage possibilities, with published binomial option pricing parameters. A new set of parameters are developed, and tested under exacting conditions against the more popular choices.