An Extension of the Three-Jump Process Model for Contingent Claim Valuation

This article presents the three-jump process model to price contingent claims whose underlying variables follow geometric Brownian motions by extending Boyle's lattice model. The lattice is constructed to incorporate the information contained in the skewness as well as the mean and the variance of the lognormal distribution. The model has two particular advantages. It improves the accuracy of contingent claims valuation by using the skewness information, and it enhances the efficiency of the computational procedures by determining the parameters uniquely within the model