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.
KeywordsHull Volatility Estima Hedging
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