Multi-Purpose Binomial Model: Fitting all Moments to the Underlying Geometric Brownian Motion
Pricing of Securities
2016-12-07 v1
Abstract
We construct a binomial tree model fitting all moments to the approximated geometric Brownian motion. Our construction generalizes the classical Cox-Ross-Rubinstein, the Jarrow-Rudd, and the Tian binomial tree models. The new binomial model is used to resolve a discontinuity problem in option pricing.
Keywords
Cite
@article{arxiv.1612.01979,
title = {Multi-Purpose Binomial Model: Fitting all Moments to the Underlying Geometric Brownian Motion},
author = {Y. S. Kim and S. Stoyanov and S. Rachev and F. Fabozzi},
journal= {arXiv preprint arXiv:1612.01979},
year = {2016}
}