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Moment-matching multinomial lattices using Vandermonde matrices for option pricing
Mälardalen University, School of Education, Culture and Communication, Educational Sciences and Mathematics. (Matematik/tillämpad matematik; Engineering mathematics)ORCID iD: 0000-0003-3204-617X
University of Nairobi, Nairobi, Kenya.
Mälardalen University, School of Education, Culture and Communication, Educational Sciences and Mathematics. (Matematik/tillämpad matematik; Engineering mathematics)ORCID iD: 0000-0003-0586-1320
Mälardalen University, School of Education, Culture and Communication, Educational Sciences and Mathematics. (Matematik/tillämpad matematik)ORCID iD: 0000-0002-0835-7536
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2016 (English)In: Stochastic and Data Analysis Methods and Applications in Statistics and Demography: Book 2 / [ed] James R. Bozeman, Teresa Oliveira and Christos H. Skiadas, ISAST , 2016, Vol. 2, 15-29 p.Conference paper, (Refereed)
Abstract [en]

Lattice models are discretization methods that divide the life of a financial option into time steps of equal length and model the underlying asset movement at each time step. A financial option of American or European style can be evaluated conveniently via backward induction using a lattice model. The most common lattice models are the well-known binomial- and trinomial lattice models, although severalkinds of higher order models have also been examined in the literature. In the presentpaper we present an explicit scheme for creating a lattice model of arbitrary order and use the Vandermonde matrix to determine suitable parameters. Some selected models created using this scheme are examined with regard to their suitability for option pricing

Place, publisher, year, edition, pages
ISAST , 2016. Vol. 2, 15-29 p.
Keyword [en]
Lattice models, moment-matching, multinomial, Vandermonde matrix, option pricing
National Category
Mathematics
Research subject
Mathematics/Applied Mathematics
Identifiers
URN: urn:nbn:se:mdh:diva-34549ISBN: 978-618-5180-18-8 (print)ISBN: 978-618-5180-19-5 (print)OAI: oai:DiVA.org:mdh-34549DiVA: diva2:1059943
Conference
16th Applied Stochastic Models and Data Analysis (ASMDA) International Conference, Piraeus, Greece, 30 June - 4 July 2015
Available from: 2016-12-26 Created: 2016-12-26 Last updated: 2016-12-28Bibliographically approved

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CiteExportLink to record
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Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
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  • Other locale
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Output format
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  • asciidoc
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