Convergence of Discrete Time Options Pricing Models under Stochastic Rates

J.P. Lesne, Jean-Luc Prigent and Olivier Scaillet

Working Papers from Paris X - Nanterre, U.F.R. de Sc. Ec. Gest. Maths Infor.

Abstract: We analyze the joint convergence of sequences of discounted stock prices and the Radon-Nicodym derivatives of the minimal martingale measure when interest rates are stochastic. Therefrom we deduce the convergence of option values in either complete or incomplete markets. We particularize the general reuslt to two main examples: a discrete time i.i.d. approximation of a Merton type pricing model for options on stocks and the trinomial tree of Hull and White for interest rate derivatives.

Keywords: PRICES; INTEREST RATE; ECONOMETRICS; CONVERGENCE (search for similar items in EconPapers)
JEL-codes: D52 E43 G13 (search for similar items in EconPapers)
Pages: 14 pages
Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:fth:pnegmi:9734

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