Random binomial tree models and put options

• Main Authors: Ganikhodjaev, Nasir, Bayram, Kamola
• Format: Conference or Workshop Item
• Language: English; English
• Published: IIUM 2012
• Subjects: QA Mathematics
• Online Access: http://irep.iium.edu.my/26982/1/2010C.pdf; http://irep.iium.edu.my/26982/4/Programme_Book_latest_2.pdf; http://irep.iium.edu.my/26982/; http://www.iium.edu.my/icmae/12/
• Institution: Universiti Islam Antarabangsa Malaysia

In this paper we introduce and study the simplest random binomial tree model. Usual binomial tree model is prescribed by pair of numbers (u, d), where u denotes the increase rate of the stock over the fixed period of time and d denotes the decrease rate, with 0< d < 1< u. We call the pair (u, d) an environment of the binomial tree model. A pair (Un, Dn), where {Un} and {Dn} are the sequences of independent, identically distributed random variables with 0< Dn < 1< Un for all n, is called a random environment and binomial tree model with random environment is called random binomial tree model. In this paper we define and study European put option for such models.