An auto-regressive conditional binomial option pricing model

Prigent, Jean-Luc, Renault, Olivier and Scaillet, Olivier (2000) An auto-regressive conditional binomial option pricing model. Financial Markets Group Discussion Papers (364). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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Abstract

This paper offers an option pricing framework grounded in econometric microstructure modelling. We consider a model where stock price dynamics follow a pure jump process with constant jump size similar to a binomial setting with random time steps. Jump arrival times are described as an Autoregressive Conditional Duration (ACD) process while conditional probabilities of up-moves are given by the logistic transformation of an autoregressive process. We derive no-arbitrage pricing formulae under the minimal martingale measure and illustrate the use of our Autoregressive Conditional Binomial (ACB) option pricing model on intraday IBM stock data.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://www.fmg.ac.uk/
Additional Information:	© 2000 The Authors
Divisions:	Financial Markets Group
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance
JEL classification:	C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics > C41 - Duration Analysis D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D52 - Incomplete Markets G - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing; Futures Pricing
Date Deposited:	04 Jul 2023 09:54
Last Modified:	11 Sep 2025 05:11
URI:	http://eprints.lse.ac.uk/id/eprint/119095

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