The binomial option pricing model assumes that there exist only two possible prices for the forthcoming period. And, the two prices are the ones realized on an uptick or downtick. According to this model, the price of an option is equal to the difference between the present value of the st...
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Option pricingWe propose a new strategy to determine the parameters of the binomial tree model, which avoids the existing models' drawback of yielding a negative probability distribution p and avoids the restrictive conditions imposed on these models, such as ud = 1. Specifically, by regarding ...
In this paper we suppose that our investor has ambiguous beliefs, meaning that, rather than having a single probability\mathbf {P}, he/she actually considers a class of probabilities\mathcal {P}. In this case, the choice of\{\theta _0,\ldots ,\theta _{T-1}\}should take into account...