Two‐State Option Pricing: Binomial Models Revisited
George M. Jabbour,
Marat V. Kramin and
Stephen D. Young
Journal of Futures Markets, 2001, vol. 21, issue 11, 987-1001
Abstract:
This article revisits the topic of two‐state option pricing. It examines the models developed by Cox, Ross, and Rubinstein (1979), Rendleman and Bartter (1979), and Trigeorgis (1991) and presents two alternative binomial models based on the continuous‐time and discrete‐time geometric Brownian motion processes, respectively. This work generalizes the standard binomial approach, incorporating the main existing models as particular cases. The proposed models are straightforward and flexible, accommodate any drift condition, and afford additional insights into binomial trees and lattice models in general. Furthermore, the alternative parameterizations are free of the negative aspects associated with the Cox, Ross, and Rubinstein model. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:987–1001, 2001
Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jfutmk:v:21:y:2001:i:11:p:987-1001
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