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.
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Borak, S., Härdle, W.K., López-Cabrera, B. (2013). Binomial Model for European Options. In: Statistics of Financial Markets. Universitext. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-33929-5_7
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DOI: https://doi.org/10.1007/978-3-642-33929-5_7
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