Abstract
This paper introduces a discrete-time self-exciting threshold binomial model to price
derivative securities. The key idea is to incorporate the regime switching effect in a discretetime binomial model for an asset’s prices via the ‘‘self-exciting’’ threshold principle. The
proposed model provides a simple structure for pricing options in a changing economic
environment. Numerical examples for the proposed threshold binomial model as well as
their trinomial extension are given.
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derivative securities. The key idea is to incorporate the regime switching effect in a discretetime binomial model for an asset’s prices via the ‘‘self-exciting’’ threshold principle. The
proposed model provides a simple structure for pricing options in a changing economic
environment. Numerical examples for the proposed threshold binomial model as well as
their trinomial extension are given.
©
| Original language | English |
|---|---|
| Pages (from-to) | 28-37 |
| Journal | Mathematical and Computer Modelling |
| Volume | 58 |
| Issue number | 1 |
| DOIs | |
| Publication status | Published - 2013 |
| Externally published | Yes |