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Binomial Model for European Options

  • Jürgen FrankeEmail author
  • Wolfgang Karl Härdle
  • Christian Matthias Hafner
Chapter
Part of the Universitext book series (UTX)

Abstract

A large range of options exist for which the boundary conditions of the Black- Scholes differential equation are too complex to solve analytically; an example being the American option. One therefore has to rely on numerical price computation. The best known methods for this is to approximate the stock price process by a discrete time stochastic process, or, as in the approach followed by Cox, Ross, Rubinstein, model the stock price process as a discrete time process from the start. By doing this, the options time to maturity T is decomposed into n equidistant time steps of length

Keywords

Stock Price Option Price Stock Prex Call Option Implied Volatility 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2011

Authors and Affiliations

  • Jürgen Franke
    • 1
    Email author
  • Wolfgang Karl Härdle
    • 2
    • 3
  • Christian Matthias Hafner
    • 4
  1. 1.FB MathematikTU KaiserslauternKaiserslauternGermany
  2. 2.Ladislaus von Bortkiewicz Chair of Statistics C.A.S.E. Centre for Applied Statistics and Economics School of Business and EconomicsHumboldt-Universität zu BerlinBerlinGermany
  3. 3.Graduate Institute of StatisticsNational Central UniversityJhongliTaiwan
  4. 4.Inst. StatistiqueUniversité Catholique de LouvainLeuven-la-NeuveBelgium

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