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Binomial Model for European Options

  • Szymon Borak
  • Wolfgang Karl Härdle
  • Brenda López-Cabrera
Chapter
Part of the Universitext book series (UTX)

Abstract

For a large range of options such as the American options the boundary conditions of the Black-Scholes differential equation are too complex to solve analytically. Therefore, one relies on numerical price computation. The best known method is to approximate the stock price process by a discrete time stochastic process, or, as in the approach followed by Cox, Ross, Rubinstein, to model the stock price process as a discrete time process from the start. The binomial model is a convenient tool for pricing European options.

Keywords

Stock Price Option Price Call Option Implied Volatility American Option 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2013

Authors and Affiliations

  • Szymon Borak
    • 1
  • Wolfgang Karl Härdle
    • 1
  • Brenda López-Cabrera
    • 1
  1. 1.Humboldt-Universität zu Berlin Ladislaus von Bortkiewicz Chair of StatisticsC.A.S.E. Centre for Applied Statistics and Economics School of Business and EconomicsBerlinGermany

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