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Pricing Options Based on Trinomial Markov Tree
Joint Authors
Tao, Du
Lihua, Cui
Jiafeng, Guo
Jie, Cao
Xiaoping, Hu
Source
Discrete Dynamics in Nature and Society
Issue
Vol. 2014, Issue 2014 (31 Dec. 2014), pp.1-7, 7 p.
Publisher
Hindawi Publishing Corporation
Publication Date
2014-07-16
Country of Publication
Egypt
No. of Pages
7
Main Subjects
Abstract EN
A trinomial Markov tree model is studied for pricing options in which the dynamics of the stock price are modeled by the first-order Markov process.
Firstly, we construct a trinomial Markov tree with recombining nodes.
Secondly, we give an algorithm for estimating the risk-neutral probability and provide the condition for the existence of a validation risk-neutral probability.
Thirdly, we propose a method for estimating the volatilities.
Lastly, we analyze the convergence and sensitivity of the pricing method implementing trinomial Markov tree.
The result shows that, compared to binomial Markov tree, the proposed model is a natural combining tree and, while changing the probability of the node, it is still combining, so the computation is very fast and very easy to be implemented.
American Psychological Association (APA)
Xiaoping, Hu& Jiafeng, Guo& Tao, Du& Lihua, Cui& Jie, Cao. 2014. Pricing Options Based on Trinomial Markov Tree. Discrete Dynamics in Nature and Society،Vol. 2014, no. 2014, pp.1-7.
https://search.emarefa.net/detail/BIM-486038
Modern Language Association (MLA)
Xiaoping, Hu…[et al.]. Pricing Options Based on Trinomial Markov Tree. Discrete Dynamics in Nature and Society No. 2014 (2014), pp.1-7.
https://search.emarefa.net/detail/BIM-486038
American Medical Association (AMA)
Xiaoping, Hu& Jiafeng, Guo& Tao, Du& Lihua, Cui& Jie, Cao. Pricing Options Based on Trinomial Markov Tree. Discrete Dynamics in Nature and Society. 2014. Vol. 2014, no. 2014, pp.1-7.
https://search.emarefa.net/detail/BIM-486038
Data Type
Journal Articles
Language
English
Notes
Includes bibliographical references
Record ID
BIM-486038