Edgeworth binomial trees were applied to price contingent claims when the underlying return distribution is skewed and leptokurtic, but with the limitation of working only for a limited set of skewness and kurtosis values. Recently, Johnson binomial trees were introduced to accommodate any...

We propose a model for pricing a unit-linked life insurance policy embedding a surrender option. We consider both single and annual premium contracts. First we analyse a quite general contract, for which we obtain a backward recursive valuation formula based on the Cox, Ross and Rubinstein...

A new simulation based algorithm to approximate prices of path dependent European options is introduced. The algorithm is defined for tree-like approximations to the underlying process and makes extensive use of structural properties of the discrete approximation. We indicate the advantages of...

Public information in financial markets often arrives through the disclosures of interested parties who have a material interest in the reactions of the market to the new information. When the strategic interaction between the sender and the receiver is formalized as a disclosure game with...

Interest-rate derivative models governed by parabolic partial differential equations (PDEs) are studied with discrete-time recombining binomial trees. For the Buehler-Kaesler discount-bond model, the expiration value of the bond is a limit point of tree sites. Representative calculations give a...

A new binomial approximation to the Black-Scholes model is introduced. It is shown that, for digital options and vanilla European call and put options, a complete asymptotic expansion of the error in powers of n-1 exists. This is the first binomial tree for which an asymptotic expansion has been...

In this selective literature review, we start by observing that in efficient markets, there is information incorporated in option prices that might help us to design option pricing models. To this end, we review the numerous methods of recovering risk-neutral probability distributions from...

The interrelation between the drift coefficient of price processes on arbitrage-free financial markets and the corresponding transition probabilities induced by a martingale measure is analysed in a discrete setup. As a result, we obtain a flexible setting that encompasses most arbitrage-free...