What question did this study set out to answer?

The aim is to develop a method for inferring risk-neutral probabilities from observed European option prices.

July 1, 1994The Journal of Finance

Implied Binomial Trees

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The aim is to develop a method for inferring risk-neutral probabilities from observed European option prices.
Develops a new method to infer risk-neutral probabilities from option prices.
Uses a backwards recursive procedure to establish a fully specified binomial tree.
Ensures the binomial tree is consistent with the provided risk-neutral probabilities.
Infers a unique binomial tree consistent with observed option prices.
Generalizes the standard binomial option pricing model for various risk-neutral distributions.
Provides a natural approach to modeling arbitrary ending risk-neutral distributions.

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Implication

Randomized trial demonstrates a method for inferring unique binomial trees from European option prices, suggesting a new way to model asset price distributions.

Cite This Study

Mark Rubinstein (1994) studied this question.

synapsesocial.com/papers/6a1bc3a0c97d63156a5ee4d7 https://doi.org/10.1111/j.1540-6261.1994.tb00079.x

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Implication

Randomized trial demonstrates a method for inferring unique binomial trees from European option prices, suggesting a new way to model asset price distributions.

Implied Binomial Trees

Key Points

Discussion

Implication

Cite This Study

Implied Binomial Trees

Key Points

Discussion

Implication

Cite This Study

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