This article develops a method for valuing contingent payoffs for a non-constant volatility process via a simple recombining binomial tree. The direct application of the technology provides a way to price, for example, American calls or puts governed by a stock price process with stochastic...

Univariate procedures for valuing contingent payoffs for a non-constant volatility process via a recombining tree were developed by Nelson and Ramaswamy (RFS, 1990). Their results have been extended to the bivariate case for a subset of diffusions by, among others, Kishimoto (JF, 1989), Boyle,...