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A Log-Transformed Binomial Numerical Analysis Method for Valuing Complex Multi-Option Investments

Published online by Cambridge University Press:  06 April 2009

Lenos Trigeorgis
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Abstract

This paper presents a numerical method for valuing complex investments with multiple interacting options. The method is a log-transformed variation of binomial option pricing designed to overcome problems of consistency, stability, and efficiency encountered in the Cox, Ross, and Rubinstein (1979) and other numerical methods. This method handles well options with a series of exercise prices (compound options), nonproportional dividends, and interactions among a variety of real options. Comparisons with several existing numerical methods regarding accuracy, consistency, stability, and efficiency are given.

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Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 26 , Issue 3 , September 1991, pp. 309 - 326
Copyright
Copyright © School of Business Administration, University of Washington 1991

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