The Multinomial Option Pricing Model And Its Brownian And Poisson Limits

Dilip B. Madan, Frank Milne and Hersh Shefrin
Additional contact information
Dilip B. Madan: University of Maryland
Hersh Shefrin: Santa Clara University

No 1162, Working Paper from Economics Department, Queen's University

Abstract: The Cox, Ross, and Rubinstein binomial model is generalized to the multinomial case. Limits are investigated and shown to yield the Black-Scholes formula in the case of continuous sample paths fora wide variety of complete market structures. In the discontinuous case a Merton-type formula is shown to result, provided jump probabilities are replacedby their corresponding Arrow-Debreu prices.

Keywords: Multinomial; option; pricing; Brownian; Poisson (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Pages: 15 pages
Date: 1990-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.econ.queensu.ca/sites/econ.queensu.ca/files/qed_wp_1162.pdf First version 1990 (application/pdf)

Related works:
Journal Article: The Multinomial Option Pricing Model and Its Brownian and Poisson Limits (1989)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:1162

Access Statistics for this paper

More papers in Working Paper from Economics Department, Queen's University Contact information at EDIRC.
Bibliographic data for series maintained by Mark Babcock ().