Trinomial Option Pricing Model

Trinomial Option Pricing Model
An option pricing model incorporating three possible values that an underlying asset can have in one time period. The three possible values the underlying asset can have in a time period may be greater than, the same as, or less than the current value.

The trinomial option pricing model differs from the binomial option pricing model in one key aspect, which is incorporating another possible value in one periods time. Under the binomial option pricing model, it is assumed that the value of the underlying asset will either be greater than or less than, its current value. The trinomial model, on the other hand, incorporates a third possible value, which incorporates a zero change in value over a time period.

This assumption makes the trinomial model more relevant to real life situations, as it is possible that the value of an underlying asset may not change over a time period, such as a month or a year.


Investment dictionary. . 2012.

Игры ⚽ Нужен реферат?

Look at other dictionaries:

  • Binomial options pricing model — BOPM redirects here; for other uses see BOPM (disambiguation). In finance, the binomial options pricing model (BOPM) provides a generalizable numerical method for the valuation of options. The binomial model was first proposed by Cox, Ross and… …   Wikipedia

  • Monte Carlo methods for option pricing — In mathematical finance, a Monte Carlo option model uses Monte Carlo methods to calculate the value of an option with multiple sources of uncertainty or with complicated features. [1] The term Monte Carlo method was coined by Stanislaw Ulam in… …   Wikipedia

  • Option (finance) — Stock option redirects here. For the employee incentive, see Employee stock option. Financial markets Public market Exchange Securities Bond market Fixed income …   Wikipedia

  • Option time value — Finance Financial markets Bond market …   Wikipedia

  • Constant Elasticity of Variance Model — In mathematical finance, the CEV or Constant Elasticity of Variance model is a stochastic volatility model, which attempts to capture stochastic volatility and the leverage effect. The model is widely used by practitioners in the financial… …   Wikipedia

  • TCVP option — (Triangular Currency Variable Payoff)Payoff = max [S – X(1+rδ)] x [Net Currency Exposure x (1+rΩ)] where: δ and Ω are both IID unit normal stochastic, r is 30 day LIBORPricing this option involves the use of a trinomial options pricing model. The …   Wikipedia

  • Option style — In finance, the style or family of an option is a general term denoting the class into which the option falls, usually defined by the dates on which the option may be exercised. The vast majority of options are either European or American (style) …   Wikipedia

  • Foreign-exchange option — Foreign exchange Exchange rates Currency band Exchange rate Exchange rate regime Exchange rate flexibility Dollarization Fixed exchange rate Floating exchange rate Linked exchange rate Managed float regime Markets Foreign exchange market Futures… …   Wikipedia

  • Binary option — In finance, a binary option is a type of option where the payoff is either some fixed amount of some asset or nothing at all. The two main types of binary options are the cash or nothing binary option and the asset or nothing binary option. The… …   Wikipedia

  • Black–Scholes — The Black–Scholes model (pronounced /ˌblæk ˈʃoʊlz/[1]) is a mathematical model of a financial market containing certain derivative investment instruments. From the model, one can deduce the Black–Scholes formula, which gives the price of European …   Wikipedia

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”