Alternative Pricing Approaches

  • Brian A. Eales


This chapter examines tree and simulation approaches to the pricing of options. Many financial instruments have embellishments which make standard approaches to pricing, or accurate pricing, difficult. Chapter 6 examined the Black and Scholes method of pricing regular and some exotic options. As an extension this chapter develops alternative pricing frameworks and in the process introduces some important concepts for both the pricing and hedging of option positions.


Option Price Time Slice Stochastic Volatility Call Option Barrier Option 
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Further Reading

  1. Boyle, P., and S. H. Lau, ‘Bumping up against the Barrier with the Binomial Method’, Journal of Derivatives, Summer 1994, pp. 6–14.Google Scholar
  2. Clewlow, L. and A. Carverhill, ‘On the Simulation of Contingent Claims’, Financial Options Research Centre, University of Warwick, FORC, February 1995.Google Scholar
  3. Clewlow, L. and C. Strickland, Implementing Derivative Models, Wiley (1998).Google Scholar
  4. Connolly, K., Pricing Convertible Bonds, Wiley (1998).Google Scholar
  5. Cox, J. C. and M. Rubinstein, Option Markets, Prentice-Hall (1985).Google Scholar
  6. Hull, J., Options, Futures, and other Derivatives, 3rd edn, Prentice-Hall (1997).Google Scholar
  7. Levy, H. and M. Sarnat, Portfolio and Investment Selection: Theory and Practice, Prentice-Hall International (1984).Google Scholar
  8. Lyuu, Yu-Dauh, ‘Very Fast Algorithms for Barrier Option Pricing and the Ballot Problem’, Journal of Derivatives, Vol. 4, Spring 1998, pp. 68–79.CrossRefGoogle Scholar
  9. Redhead, K., Financial Derivatives, Wiley (1997).Google Scholar
  10. Ritchken, P., ‘On Pricing Barrier Options’, Journal of Derivatives, Winter 1995, pp. 19–28.Google Scholar

Copyright information

© Brian Eales 2000

Authors and Affiliations

  • Brian A. Eales

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