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Management Science Vol. 37 No. 12 1991

Multinomial Approximating Models for Options with k State Variables

Bardia Kamrad1; Peter Ritchken2

1 Faculty of Decision Sciences, School of Business Administration, Georgetown University, Washington, D.C. 20057 · 2 Department of Operations Research, Weatherhead School of Management, Case Western Reserve University, Cleveland, Ohio 44106

open access

Abstract

Contingent claims whose values depend on multiple sources of uncertainty arise in many financial contracts and in the analysis of real projects. Unfortunately closed form solutions for these options are rare and numerical methods can be computationally expensive. This article extends the literature on multinomial approximating models. Specifically, new multinomial models are presented that include as special cases existing models. The more general models are shown to be computationally more efficient.

DOI
10.1287/mnsc.37.12.1640
Volume
37
Issue
12
Pages
1640-1652
Language
en
Sources
bibtex:phds-export.bib crossref openalex

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