Evaluation of Options using The Cox-Ross-Rubinshtein Mathematical Model

Authors

  • Chetna Sharma

Abstract

Using complex mathematical formulas, we can calculate the reasonable value of an option.The Cox-Ross-Rubinstein model takes into account factors that are not considered in the Black-Scholes model and is an improved version of the binomial model. At the same time, the Cox-Ross-Rubinshtein model gives results close to the Black-Scholes model. The difference between these two models is that the Cox Ross Rubinstein modeltakes into account the possibility of early execution of the Option, which is very important with a high risk-free interest rate. The present paper mathematically highlights how the options can be evaluated using the Cox Ross Rubinstein model.

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Published

2018-12-05

Issue

Vol. 8 No. 2 (2018)

Section

Articles

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