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Generalized Binomial Trees

Paper:ewp-fin/9803004
From: Patt Bagdon <   > 
Date: Mon, 23 Mar 1998 10:55:20 -0800

Title: Generalized Binomial Trees
Author: Jens Carsten Jackwerth (Haas School of Business, University of California, Berkeley)
Contact:
Comments: postscript, revised August 1997
JEL: G
EWP References: none
Report-no: (Research Program in Finance Working Paper, University of California, Berkeley) IBER-CalBerk RPF-264-Rev

Abstract:

Abstract: We consider the problem of consistently pricing new options given the prices of related options on the same stock. The Black-Scholes formula and standard binomial trees can only accommodate one related European option which then effectively specifies the volatility parameter. Implied binomial trees can accommodate only related European options with the same time-to-expiration. The generalized binomial trees introduced here can accommodate any kind of related options (European, American, or exotic) with different times-to-expiration.

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