Option pricing: a yet simpler approach

DOI10.1007/S10203-021-00338-7zbMATH Open1492.91387arXiv1705.00212OpenAlexW3167759702MaRDI QIDQ2145691FDOQ2145691

Authors: Jarno Talponen, Minna Turunen 

Publication date: 17 June 2022

Published in: Decisions in Economics and Finance (Search for Journal in Brave)

Abstract: We provide a lean, non-technical exposition on the pricing of path-dependent and European-style derivatives in the Cox-Ross-Rubinstein (CRR) pricing model. The main tool used in the paper for cleaning up the reasoning is applying static hedging arguments. This can be accomplished by taking various routes through some auxiliary considerations, namely Arrow-Debreu securities, digital options or backward random processes. In the last case the CRR model is extended to an infinite state space which leads to an interesting new phenomenon not present in the classical CRR model. At the end we discuss the paradox involving the drift parameter $mu$ in the BSM model pricing. We provide sensitivity analysis and the speed of converge for the asymptotically vanishing drift.

Full work available at URL: https://arxiv.org/abs/1705.00212

Recommendations

• Option pricing: A simplified approach
• scientific article; zbMATH DE number 6402355
• On some generalization of the Cox-Ross-Rubinstein model and its asymptotics of Black-Scholes type
• scientific article; zbMATH DE number 1497173
• The research of Black-Scholes' formula for pricing European options

zbMATH Keywords

lattice modelderivativesbackward processCRR model

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20)

Cites Work

• The pricing of options and corporate liabilities
• Title not available (Why is that?)
• Existence of an Equilibrium for a Competitive Economy
• Binomial valuation of lookback options
• Generalized Cox-Ross-Rubinstein binomial models
• Binomial models for option valuation - examining and improving convergence
• Spanning, valuation and options
• Stochastic finance. An introduction in discrete time.
• Binomial models in finance.
• On the option pricing for a generalization of the binomial model
• An integrated model for hybrid securities
• An Improved Binomial Lattice Method for Multi‐Dimensional Options

Cited In (3)

• Options and sunspots in a simple monetary economy
• Effective and simple VWAP options pricing model
• Back to basics: historical option pricing revisited

This page was built for publication: Option pricing: a yet simpler approach

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q2145691)