The Cox–Ross–Rubinstein Binomial Model

Igor V. Evstigneev, Thorsten Hens and Klaus Schenk-Hoppé
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Igor V. Evstigneev: University of Manchester
Thorsten Hens: University of Zurich

Chapter 13 in Mathematical Financial Economics, 2015, pp 125-135 from Springer

Abstract: Abstract This chapter focuses on the Cox–Ross–Rubinstein binomial model, a special case of the multi-period dynamic securities market model. A central result is the construction of the risk-neutral probability measure, which is used for the pricing of a whole range of derivative securities. The examples considered include European put and call options, Asian average strike call and put, Asian average price call and put, and lookback call and put options. The chapter concludes with a general formula for the price of a contingent claim in the two-period binomial model.

Keywords: Binomial Model; Derivative Securities; Risk-neutral Probability Measure; Lookback; Hedging Contingent Claims (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sptchp:978-3-319-16571-4_13

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DOI: 10.1007/978-3-319-16571-4_13

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