an:05258680
Zbl 1131.91333
Cox, John C.; Ross, Stephen A.; Rubinstein, Mark
Option pricing: a simplified approach
EN
J. Financ. Econ. 7, No. 3, 229-263 (1979).
00217699
1979
j
91G20 91G60
binomial options pricing model; numerical method; valuation of options; Cox-Ross-Rubinstein model; CRR
Summary: This paper presents a simple discrete-time model for valuing options. The fundamental economic principles of option pricing by arbitrage methods are particularly clear in this setting. Its development requires only elementary mathematics, yet it contains as a special limiting case the celebrated Black-Scholes model [\textit{F. Black} and \textit{M. Scholes}, J. Polit. Econ. 81, 637--654 (1973; Zbl 1092.91524)], which has previously been derived only by much more difficult methods. The basic model readily lends itself to generalization in many ways. Moreover, by its very construction, it gives rise to a simple and efficient numerical procedure for valuing options for which premature exercise may be optimal.
Zbl 1092.91524