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Abstract
In this paper, we analyze properties of multinomial lattices that model general stochastic dynamics of the underlying stock by taking into account any given cumulants (or moments). First, we provide a parameterization of multinomial lattices, and demonstrate that mean, variance, skewness, and kurtosis of the underlying may be matched using five branches. Then, we investigate the convergence of the multinomial lattice when the basic time period approaches zero, and prove that the limiting process of the multinomial lattice that matches annualized mean, variance, skewness and kurtosis is given by a compound Poisson process. Finally, we illustrate the effect of higher order moments in the underlying asset process on the price of derivative securities through numerical experiments using the multinomial lattice, and provide a comparison with jump-diffusion models.
Journal
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- Asia-Pacific financial markets
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Asia-Pacific financial markets 11 (3), 335-365, 2004-09
Springer
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Details 詳細情報について
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- CRID
- 1050282677519451904
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- NII Article ID
- 120007129168
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- NII Book ID
- AA11224457
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- ISSN
- 13872834
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- HANDLE
- 2241/00146090
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- Text Lang
- en
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- Article Type
- journal article
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- Data Source
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- IRDB
- CiNii Articles