Random dynamics and finance: Constructing implied binomial trees from a predetermined stationary density

Wael Bahsoun; Pawel Gora; Silvia Mayoral; Manuel Morales

doi:10.1002/asmb.663

Random dynamics and finance: Constructing implied binomial trees from a predetermined stationary density

Wael Bahsoun, Pawel Gora, Silvia Mayoral, Manuel Morales

Economics

Research output: Contribution to journal › Article › peer-review

Abstract

We introduce a general binomial model for asset prices based on the concept of random maps. The asymptotic stationary distribution for such model is studied using techniques from dynamical systems. In particular, we present a technique to construct a general binomial model with a predetermined stationary distribution. This technique is independent of the chosen distribution making our model potentially useful in financial applications. We briefly explore the suitability of our construction as an implied binomial tree. Copyright © 2006 John Wiley & Sons, Ltd.

Original language	English
Pages (from-to)	181-212
Number of pages	31
Journal	Applied Stochastic Models in Business and Industry
Volume	23
Issue number	3
DOIs	https://doi.org/10.1002/asmb.663
Publication status	Published - May 2007

Keywords

Binomial model
Implied binomial trees
Perron-frobenius operator
Random map

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10.1002/asmb.663

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abstract = "We introduce a general binomial model for asset prices based on the concept of random maps. The asymptotic stationary distribution for such model is studied using techniques from dynamical systems. In particular, we present a technique to construct a general binomial model with a predetermined stationary distribution. This technique is independent of the chosen distribution making our model potentially useful in financial applications. We briefly explore the suitability of our construction as an implied binomial tree. Copyright {\textcopyright} 2006 John Wiley \& Sons, Ltd.",

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KW - Perron-frobenius operator

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Random dynamics and finance: Constructing implied binomial trees from a predetermined stationary density

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Keywords

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