Multi-purpose binomial model: Fitting all moments to the underlying geometric Brownian motion

Economics Letters, Volume 145, pp225-229, August 2016 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 ...
Author(s)
Y.S. Kim, Stoyan Stoyanov, Svetlozar Rachev, Frank J. Fabozzi

Economics Letters, Volume 145, pp225-229, August 2016

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.

See more