To make high-quality research more accessible and easier to explore.

Fields:
2 results ✕ Clear filters

The Multinomial Option Pricing Model and its Brownian and Poisson Limits

Dilip B. Madan; Frank Milne; Hersh Shefrin
Review of Financial Studies 1989 2(2), 251-265
[The Cox, Ross, and Rubinstein binomial model is generalized to the multinomial case. Limits are investigated and shown to yield the Black-Scholes formula in the case of continuous sample paths for a wide variety of complete market structures. In the discontinuous case a Merton-type formula is shown to result, provided jump probabilities are replaced by their corresponding Arrow-Debreu prices.]

The Multinomial Option Pricing Model and Its Brownian and Poisson Limits

Dilip B. Madan; Frank Milne; Hersh Shefrin
Review of Financial Studies 1989 2(2), 251-265
The Cox, Ross, and Rubinstein binomial model is generalized to the multinomial case. Limits are investigated and shown to yield the Black-Scholes formula in the case of continuous sample paths for a wide variety of complete market structures. In the discontinuous case of Merton-type formula is shown to result, provided jump probabilities are replaced by their corresponding Arrow-Debreu prices.