Robust Option through Binomial Tree Method

Payam Hanafizadeh, Amir Hossein Mortazavi Qahi and Kumaraswamy Ponnambalam
Additional contact information
Payam Hanafizadeh: Department of Industrial Management, Faculty of Management and Accountancy, Allameh Tabataba'i University, Tehran, Iran
Amir Hossein Mortazavi Qahi: Department of Financial Engineering, University of Science and Culture, Tehran, Iran
Kumaraswamy Ponnambalam: Department of Systems Design Engineering, University of Waterloo, Ontario, Canada

International Journal of Strategic Decision Sciences (IJSDS), 2015, vol. 6, issue 4, 42-53

Abstract: This study proposes a robust approach for pricing a European option using the binomial tree method. This method considers stock up and down prices in a closed and convex region, called the uncertainty region, defined by the covariance matrix of high and low stock prices. The option model uses this uncertainty region for pricing instead of spot prices. The method proposes an interval of prices for an option considering incidences of the worst and the best states of the stock price. The interval is flexible as it takes into account the covariance of the historical data of a stock's high and low prices and the radius of an uncertainty region.

Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://services.igi-global.com/resolvedoi/resolve. ... 018/IJSDS.2015100103 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:igg:jsds00:v:6:y:2015:i:4:p:42-53

Access Statistics for this article

International Journal of Strategic Decision Sciences (IJSDS) is currently edited by Saeed Tabar

More articles in International Journal of Strategic Decision Sciences (IJSDS) from IGI Global
Bibliographic data for series maintained by Journal Editor ().