Generalized Binomial Trees

Jens Jackwerth ()

Finance from EconWPA

Abstract: We consider the problem of consistently pricing new options given the prices of related options on the same stock. The Black-Scholes formula and standard binomial trees can only accommodate one related European option which then effectively specifies the volatility parameter. Implied binomial trees can accommodate only related European options with the same time-to-expiration. The generalized binomial trees introduced here can accommodate any kind of related options (European, American, or exotic) with different times-to-expiration.

JEL-codes: G (search for similar items in EconPapers)
Date: Written
Note: postscript, revised August 1997
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Related works:
Working Paper: Generalized Binomial Trees (1996)
Working Paper: Generalized Binomial Trees (1997)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:9803004

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