Constructing Binomial Trees Via Random Maps for Analysis of Financial Assets

Antonio Airton Carneiro de Freitas () and José Roberto Securato ()
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Antonio Airton Carneiro de Freitas: FEA USP
José Roberto Securato: FEA USP

Brazilian Review of Finance, 2010, vol. 8, issue 1, 25-43

Abstract: Random maps can be constructed from a priori knowledge of the financial assets. It is also addressed the reverse problem, i.e. from a function of an empirical stationary probability density function we set up a random map that naturally leads to an implied binomial tree, allowing the adjustment of models, including the ability to incorporate jumps. An applica- tion related to the options market is presented. It is emphasized that the quality of the model to incorporate a priori knowledge of the financial asset may be affected, for example, by the skewed vision of the analyst. (Full article available in Portuguese only)

Keywords: binomial trees; options; random maps (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:brf:journl:v:8:y:2010:i:1:p:25-43

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