Multiperiod Binomial Model

Robert Jarrow () and Arkadev Chatterjea

Chapter 18 in An Introduction to Derivative Securities, Financial Markets, and Risk Management, 2024, pp 389-418 from World Scientific Publishing Co. Pte. Ltd.

Abstract: The following sections are included:IntroductionToward a Multiperiod Binomial Option Pricing ModelThe Stock Price EvolutionBinomial Option Price DataThe Stock Price TreeA Two-Period Binomial ModelBackward InductionOption Pricing via Synthetic Construction (Method 1)Repeat, Repeat: Risk-Neutral Pricing (Method 2)One-Step Valuation: Prelude to the Multiperiod Model (Method 3)The Multiperiod Binomial Option Pricing ModelBinomial Coefficients and Pseudo-probabilitiesRecasting the Two-Period Example in the Multiperiod FrameworkThe n-Period Binomial Option Pricing ModelEXTENSION 18.1: Linking the Binomial Model to the Black–Scholes–Merton ModelExtending the Binomial ModelKnown DividendsValuing American OptionsSpreadsheet ApplicationsA Two-Period Binomial ExampleA Sixteen-Period ExampleSummaryCasesQuestions and Problems

Keywords: Derivatives; Financial Markets; Risk Management; Arbitrage; Financial Engineering; Forwards; Futures; Call Options; Put Options; European Options; American Options; Swaps; Currency Swaps; Interest Rate Swaps; Commodity Swaps; Equity Swaps; Credit Default Swaps; Commodity Derivatives; Equity Derivatives; Index Derivatives; Interest Rate Derivatives; Commodities; Margins and Daily Settlements; Binomial Model; Black-Scholes Model; Black-Scholes-Merton Model; Delta Hedging; Gamma Hedging; Heath-Jarrow-Morton Model; Libor Model; Forward Rate Agreements; Interest Rate Futures; Interest Rate Options; Market Manipulation; Regulation; Derivatives Exchanges (search for similar items in EconPapers)
JEL-codes: C58 G1 G10 G13 G2 G20 G32 (search for similar items in EconPapers)
Date: 2024
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