This talk discusses a multivariate extension of the well known the binomial option pricing method, and shows how it may be applied to the valuation of employee share options (ESOs) and multi-asset, multi-period contingent claims. Most of the more complex ESOs are of this type. Recently developed analytical methods permit the derivation of analytic formulae for the valuation of multi asset, multi period options and contingent claims. These usually involve the multivariate Gaussian distribution. However these formulae don’t apply when the contingent claim has early exercise features. The multivariate binomial method however can handle these types of problems. Several numerical examples are given to demonstrate the applicability of the method for contingent claims valuation. This numerical method is easy to program and practical, at least for low dimensional problems.
|Publication status||Published - 2011|
|Event||Statistical Concepts and Methods for the Modern World - Colombo, Sri Lanka|
Duration: 28 Dec 2011 → 30 Dec 2011
|Conference||Statistical Concepts and Methods for the Modern World|
|City||Colombo, Sri Lanka|
|Period||28/12/11 → 30/12/11|