Leiden University Student Repository

Sierag, D.D. (2013)

Pricing Derivatives on Multiple Assets

Master thesis | Mathematics (MSc)

In this thesis1 a direct generalisation of the recombining binomial model by Cox, Ross, and Rubinstein [16] based on Pascal’s simplex is constructed. This discrete method approximates the price of derivatives on multiple assets in a Black-Scholes market environment. It consists of a sequence of recombining multinomial trees based on Pascal’s simplex. The generalisation keeps most aspects of the binomial model intact, of which the following are the most important: The direct link to Pascal’s simplex; the matching of the moments of the log-transformed process; and the completeness of the model. The goal of this thesis is to privide a theoretical satisfactory solution. However, the recombining multinomial model might also have the potential to provide a practical satisfactory solution.

Author

Sierag, D.D.

Faculty

Faculty of Science

Supervisors

Spieksma, F.M.
Hanzon, B.

ECTS Credits

40

Language

en