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Convergence from Discrete to Continuous Time Contingent Claims Prices

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  • Hua He.

Abstract

This article generalizes the Cox, Ross, and Rubinstein (1979) binomial option-pricing model, and establishes a convergence from discrete-time multivariate multinomial models to continuous-time multidimensional diffusion models for contigent claims prices. The key to the approach is to approximate the N-dimensional diffusion price process by a sequence of N-variate, (N+1)-nomial processes. It is shown that contingent claims prices and dynamic replicating portfolio strategies derived from the discrete time models converge to their corresponding continuous-time limits. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Hua He., 1990. "Convergence from Discrete to Continuous Time Contingent Claims Prices," Research Program in Finance Working Papers RPF-199, University of California at Berkeley.
    • Handle: RePEc:ucb:calbrf:rpf-199
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