This paper proposes a dimension reduction technique on lattice model, an extension of the discrete CRR （1979） model, for option pricing. Applications are demonstrated on pricing some vulnerable options with the payo...This paper proposes a dimension reduction technique on lattice model, an extension of the discrete CRR （1979） model, for option pricing. Applications are demonstrated on pricing some vulnerable options with the payoff functions including two stochastic processes： the underlying stock price and the assets value of the option writer. Instead of building a bivariate tree structure for these correlated processes, a univariate binomial tree for the underlying stock price is only constructed. The proposed univariate binomial tree model is sufficient to undertake, though two underlying assets are involved.展开更多
The European and American call options, for which the prices of their underlying asset follow compound Poisson process, are evaluated by a probability method. Formulas that can be used to evaluate the options are obta...The European and American call options, for which the prices of their underlying asset follow compound Poisson process, are evaluated by a probability method. Formulas that can be used to evaluate the options are obtained, which include not only the elements of an option: the price of the call option, the exercise price and the expiration date, but also the riskless interest rate, nevertheless exclude the volatility of the underlying asset. In practice, the evaluated results obtained by these formulas can provide references of making strategic decision for an investor who buys the call option and a company who sells the call option.展开更多
文摘This paper proposes a dimension reduction technique on lattice model, an extension of the discrete CRR （1979） model, for option pricing. Applications are demonstrated on pricing some vulnerable options with the payoff functions including two stochastic processes： the underlying stock price and the assets value of the option writer. Instead of building a bivariate tree structure for these correlated processes, a univariate binomial tree for the underlying stock price is only constructed. The proposed univariate binomial tree model is sufficient to undertake, though two underlying assets are involved.
文摘The European and American call options, for which the prices of their underlying asset follow compound Poisson process, are evaluated by a probability method. Formulas that can be used to evaluate the options are obtained, which include not only the elements of an option: the price of the call option, the exercise price and the expiration date, but also the riskless interest rate, nevertheless exclude the volatility of the underlying asset. In practice, the evaluated results obtained by these formulas can provide references of making strategic decision for an investor who buys the call option and a company who sells the call option.
