How fundamental is the one-period trinomial model to European option pricing bounds. A new methodological approach

2017 ◽  
Vol 21 ◽  
pp. 92-99
Author(s):  
Yann Braouezec
Keyword(s):  
Option Pricing ◽  
Methodological Approach ◽  
European Option ◽  
European Option Pricing ◽  
Trinomial Model ◽  
Pricing Bounds ◽  
The One

scholarly journals Convergence Numerically of Trinomial Model in European Option Pricing

2013 ◽  
Vol 6 (3) ◽  
pp. 195-201 ◽  
Author(s):  
Entit Puspita ◽  
◽  
Fitriani Agustina ◽  
Ririn Sispiyati ◽  
◽  
...  
Keyword(s):  
Option Pricing ◽  
European Option ◽  
European Option Pricing ◽  
Trinomial Model

scholarly journals Fractional Order Stochastic Differential Equation with Application in European Option Pricing

2014 ◽  
Vol 2014 ◽  
pp. 1-12 ◽  
Author(s):  
Qing Li ◽  
Yanli Zhou ◽  
Xinquan Zhao ◽  
Xiangyu Ge
Keyword(s):  
Differential Equation ◽  
Stochastic Differential Equation ◽  
Option Pricing ◽  
Memory Effect ◽  
Fractional Order ◽  
Mean Value ◽  
European Option ◽  
European Option Pricing ◽  
Proposed Model ◽  
Pricing Formula

Memory effect is an important phenomenon in financial systems, and a number of research works have been carried out to study the long memory in the financial markets. In recent years, fractional order ordinary differential equation is used as an effective instrument for describing the memory effect in complex systems. In this paper, we establish a fractional order stochastic differential equation (FSDE) model to describe the effect of trend memory in financial pricing. We, then, derive a European option pricing formula based on the FSDE model and prove the existence of the trend memory (i.e., the mean value function) in the option pricing formula when the Hurst index is between 0.5 and 1. In addition, we make a comparison analysis between our proposed model, the classic Black-Scholes model, and the stochastic model with fractional Brownian motion. Numerical results suggest that our model leads to more accurate and lower standard deviation in the empirical study.

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