A q -binomial extension of the CRR asset pricing model

DOI10.1080/15326349.2023.2173231MaRDI QIDQ6092930zbMATH OpenOpenAlexFDO

Authors Jean-Christophe Breton, Youssef El-Khatib, Jun Fan, Nicolas Privault

Publication date 23 November 2023

Published in Stochastic Models (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2104.10163

zbMATH Keywords

\(q\)-binomial coefficientscontinuous-time limitCRR modeldefault with logistic failure rateKemp random walkoption pricingweak convergence

Mathematics Subject Classification ID

Martingales with discrete parameter (60G42) Sums of independent random variables; random walks (60G50) Derivative securities (option pricing, hedging, etc.) (91G20)

Abstract: We propose an extension of the Cox-Ross-Rubinstein (CRR) model based on $q$-binomial (or Kemp) random walks, with application to default with logistic failure rates. This model allows us to consider time-dependent switching probabilities varying according to a trend parameter on a non-self-similar binomial tree. In particular, it includes tilt and stretch parameters that control increment sizes. Option pricing formulas are written using $q$-binomial coefficients, and we study the convergence of this model to a Black-Scholes type formula in continuous time. A convergence rate of order $O(N^{-1/2})$ is obtained.

Recommendations

• Generalized Cox-Ross-Rubinstein binomial models
• scientific article; zbMATH DE number 939793
• On some generalization of the Cox-Ross-Rubinstein model and its asymptotics of Black-Scholes type
• On the convergence scheme in the CRR model
• Option pricing in CRR model with time dependent parameters for two periods of time. I

Cites work

• A q-analogue of the Stirling formula and a continuous limiting behaviour of the q-binomial distribution -- numerical calculations
• A European option general first-order error formula
• A review of the basic discrete q-distributions
• A Statistically Precise and Relatively Simple Method of Estimating the Bioassay with Quantal Response, Based on the Logistic Function
• Achieving higher order convergence for the prices of European options in binomial trees
• Asymptotic expansions for sums of nonidentically distributed Bernoulli random variables
• Asymptotics of the price oscillations of a European call option in a tree model
• Binomial models for option valuation - examining and improving convergence
• Binomial options pricing has no closed-form solution
• Can high-order convergence of European option prices be achieved with common CRR-type binomial trees?
• Convergence properties of Kemp's \(q\)-binomial distribution
• Discrete \(q\)-distributions
• Discrete q-distributions on Bernoulli trials with a geometrically varying success probability
• Generalized Cox-Ross-Rubinstein binomial models
• scientific article; zbMATH DE number 3144846 (Why is no real title available?)
• scientific article; zbMATH DE number 1354815 (Why is no real title available?)
• scientific article; zbMATH DE number 765034 (Why is no real title available?)
• scientific article; zbMATH DE number 3256930 (Why is no real title available?)
• scientific article; zbMATH DE number 3385132 (Why is no real title available?)
• scientific article; zbMATH DE number 2237386 (Why is no real title available?)
• Improving speed of convergence for the prices of European options in binomial trees with even numbers of steps
• On the rate of convergence of discrete-time contingent claims.
• On the Treatment of Grouped Observations in Life Studies
• Option convergence rate with geometric random walks approximations
• Probability with Martingales
• Quantum calculus
• Smooth convergence in the binomial model
• Stochastic analysis in discrete and continuous settings. With normal martingales.
• Stochastic finance. An introduction in discrete time
• Stochastic processes
• Stopping times and tightness
• The optimal-drift model: an accelerated binomial scheme
• The rate of convergence of the binomial tree scheme
• Univariate Discrete Distributions

Cited in

(1)

• On asset pricing in a binomial model with fixed and proportional transaction costs, portfolio constraints and dividends

This page was built for publication: A q -binomial extension of the CRR asset pricing model

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q6092930)