An auto-regressive conditional binomial option pricing model

Jean-Luc Prigent, Olivier Renault and Olivier Scaillet

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper offers an option pricing framework grounded in econometric microstructure modelling. We consider a model where stock price dynamics follow a pure jump process with constant jump size similar to a binomial setting with random time steps. Jump arrival times are described as an Autoregressive Conditional Duration (ACD) process while conditional probabilities of up-moves are given by the logistic transformation of an autoregressive process. We derive no-arbitrage pricing formulae under the minimal martingale measure and illustrate the use of our Autoregressive Conditional Binomial (ACB) option pricing model on intraday IBM stock data.

JEL-codes: C41 D52 G13 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2000-11-01
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http://eprints.lse.ac.uk/119095/ Open access version. (application/pdf)

Related works:
Working Paper: An Autoregressive Conditional Binomial Option Pricing Model (2000)
Working Paper: An Autoregressive Conditional Binomial Option Pricing Model (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:119095

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