Related papers: Looking Forward to Pricing Options from Binomial T…
Random-expiry options are nontraditional derivative contracts that may expire early based on a random event. We develop a methodology for pricing these options using a trinomial tree, where the middle path is interpreted as early expiry. We…
This paper mainly discusses the American option's hedging strategies via binomialmodel and the basic idea of pricing and hedging American option. Although the essential scheme of hedging is almost the same as European option, small…
We propose a novel algorithm which allows to sample paths from an underlying price process in a local volatility model and to achieve a substantial variance reduction when pricing exotic options. The new algorithm relies on the construction…
This paper deals with a high-order accurate implicit finite-difference approach to the pricing of barrier options. In this way various types of barrier options are priced, including barrier options paying rebates, and options on…
We consider option pricing using replicating binomial trees, with a two fold purpose. The first is to introduce ESG valuation into option pricing. We explore this in a number of scenarios, including enhancement of yield due to trader…
We extend the classical Cox-Ross-Rubinstein binomial model in two ways. We first develop a binomial model with time-dependent parameters that equate all moments of the pricing tree increments with the corresponding moments of the increments…
We consider the problem of valuation of American (call and put) options written on a dividend paying stock governed by the geometric Brownian motion. We show that the value function has two different but related representations: by means of…
We propose a machine learning-based extension of the classical binomial option pricing model that incorporates key market microstructure effects. Traditional models assume frictionless markets, overlooking empirical features such as bid-ask…
We propose a neural network approach to price EU call options that significantly outperforms some existing pricing models and comes with guarantees that its predictions are economically reasonable. To achieve this, we introduce a class of…
The theme in this paper is the recombining binomial tree to price American put option when the underlying stock follows constant elasticity of variance(CEV) process. Recombining nodes of binomial tree are decided from finite difference…
The value of an American option is the maximized value of the discounted cash flows from the option. At each time step, one needs to compare the immediate exercise value with the continuation value and decide to exercise as soon as the…
The presence of discrete dividends complicates the derivation and form of pricing formulas even for vanilla options. Existing analytic, numerical, and theoretical approximations provide results of varying quality and performance. Here, we…
The variance gamma model is a widely popular model for option pricing in both academia and industry. In this paper, we provide a new perspective for pricing European style options for the variance gamma model by deriving closed-form…
We obtain a closed-form expression for the Wiener index of binomial trees. We outline efficient algorithms for computing the Wiener indices of Fibonacci and binary Fibonacci trees.
For a given level of accuracy in option prices, the paper considers the problem of deciding when exactly, as one or more of the pricing parameters change, a barrier option degenerates into a simpler type of option. This problem is…
We discuss the pricing methodology for Bonus Certificates and Barrier Reverse-Convertible Structured Products. Pricing for a European barrier condition is straightforward for products of both types and depends on an efficient interpolation…
The vast majority of works on option pricing operate on the assumption of risk neutral valuation, and consequently focus on the expected value of option returns, and do not consider risk parameters, such as variance. We show that it is…
We explore credit risk pricing by modeling equity as a call option and debt as the difference between the firm's asset value and a put option, following the structural framework of the Merton model. Our approach proceeds in two stages:…
In the present paper we show that the Binomial-tree approach for pricing, hedging, and risk assessment of Convertible bonds in the framework of the Tsiveriotis-Fernandes model has serious drawbacks. Key words: Convertible bonds, Binomial…
Binomial tree methods (BTM) and explicit difference schemes (EDS) for the variational inequality model of American options with time dependent coefficients are studied. When volatility is time dependent, it is not reasonable to assume that…