Multi-purpose binomial model: Fitting all moments to the underlying geometric Brownian motion

Y.S. Kim, S. Stoyanov, S. Rachev and Frank Fabozzi ()

Economics Letters, 2016, vol. 145, issue C, 225-229

Abstract: We construct a binomial tree model fitting all moments to the approximated geometric Brownian motion. Our construction generalizes the classical Cox–Ross–Rubinstein, the Jarrow–Rudd, and the Tian binomial tree models. The new binomial model is used to resolve a discontinuity problem in option pricing.

Keywords: Binomial tree model; Option pricing; Geometric Brownian motion; Partial hedging (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (15)

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Working Paper: Multi-Purpose Binomial Model: Fitting all Moments to the Underlying Geometric Brownian Motion (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:145:y:2016:i:c:p:225-229

DOI: 10.1016/j.econlet.2016.05.035

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