IDEAS home Printed from https://ideas.repec.org/h/wsi/wschap/9789812812599_0001.html
   My bibliography  Save this book chapter

Multivariate Binomial Approximations For Asset Prices With Nonstationary Variance And Covariance Characteristics

In: Quantitative Analysis In Financial Markets Collected Papers of the New York University Mathematical Finance Seminar

Author

Listed:
  • TENG-SUAN HO

    (Department of Accounting and Finance, The Management School, Lancaster University, Lancaster LA1 4YX, England, UK)

  • RICHARD C. STAPLETON

    (Department of Accounting and Finance, The Management School, Lancaster University, Lancaster LA1 4YX, England, UK)

  • MARTI G. SUBRAHMANYAM

    (New York University, Stern School of Business, 44 West 4th Street, New York City, NY 10012, USA)

Abstract

In this article, we suggest an efficient method of approximating a general, multivariate lognormal distribution by a multivariate binomial process. There are two important features of such multivariate distributions. First, the state variables may have volatilities that change over time. Second, the two or more relevant state variables involved may covary with each other in a specified manner, with a time-varying covariance structure. We discuss the asymptotic properties of the resulting processes and show how the methodology can be used to value a complex, multiple exerciseable option whose payoff depends on the prices of two assets.

Suggested Citation

  • Teng-Suan Ho & Richard C. Stapleton & Marti G. Subrahmanyam, 1999. "Multivariate Binomial Approximations For Asset Prices With Nonstationary Variance And Covariance Characteristics," World Scientific Book Chapters, in: Marco Avellaneda (ed.), Quantitative Analysis In Financial Markets Collected Papers of the New York University Mathematical Finance Seminar, chapter 1, pages 1-24, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789812812599_0001
    as

    Download full text from publisher

    File URL: https://www.worldscientific.com/doi/pdf/10.1142/9789812812599_0001
    Download Restriction: Ebook Access is available upon purchase.
    File URL: https://www.worldscientific.com/doi/abs/10.1142/9789812812599_0001
    Download Restriction: Ebook Access is available upon purchase.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:wschap:9789812812599_0001. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscientific.com/page/worldscibooks .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.