Quadrinomial Trees to Value Options in Stochastic Volatility Models

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dc.citation.journalTitleJOURNAL OF DERIVATIVESeng
dc.contributor.authorPareja-Vasseur, Julian A.
dc.contributor.authorMarin-Sanchez, Freddy H.
dc.contributor.departmentUniversidad EAFIT. Escuela de Cienciasspa
dc.contributor.researchgroupModelado Matemáticospa
dc.date.accessioned2021-04-12T14:07:18Z
dc.date.available2021-04-12T14:07:18Z
dc.date.issued2019-01-01
dc.description.abstractThis article describes in detail the multiplicative quadrinomial tree numerical method with nonconstant volatility, based on a system of stochastic differential equations of the GARCH-diffusion type. The methodology allowed for the derivation of the first two moments of the proposed equations to estimate the respective recombination between discrete and continuous processes and, as a result, a numerical methodological proposal is formally presented to value, with relative ease, both real and financial options, when the volatility is stochastic. The main findings showed that in the proposed method, when volatility approaches zero, the multiplicative binomial traditional method is a particular case, and the results are comparable between these methodologies, as well as to the exact solution offered by the Black-Scholes model. Finally, the originality of the methodological proposal is that it allows for the emulation in a simple way of the presence of a nonconstant volatility in the price of the underlying asset, and it can be used to value all kinds of options both in the real world and in risk-neutral situations.eng
dc.identifierhttps://eafit.fundanetsuite.com/Publicaciones/ProdCientif/PublicacionFrw.aspx?id=9885
dc.identifier.doi10.3905/jod.2019.1.076
dc.identifier.issn10741240
dc.identifier.issn21688524
dc.identifier.otherWOS;000484049000005
dc.identifier.otherSCOPUS;2-s2.0-85088574232
dc.identifier.urihttp://hdl.handle.net/10784/27812
dc.language.isoengeng
dc.publisherInstitutional Investor Systems
dc.relation.urihttps://www.scopus.com/inward/record.uri?eid=2-s2.0-85088574232&doi=10.3905%2fjod.2019.1.076&partnerID=40&md5=2b8b8fd28927223004d7930991cb9077
dc.rightshttps://v2.sherpa.ac.uk/id/publication/issn/1074-1240
dc.sourceJOURNAL OF DERIVATIVES
dc.subject.keywordGARCHeng
dc.titleQuadrinomial Trees to Value Options in Stochastic Volatility Modelseng
dc.typearticleeng
dc.typeinfo:eu-repo/semantics/articleeng
dc.typeinfo:eu-repo/semantics/publishedVersioneng
dc.typepublishedVersioneng
dc.type.localArtículospa

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