The random-time binomial model

Article Abstract:

A binomial model with random time steps was used to calculate values for American and European call and put options. Analysis of these values showed that there was weak convergence of the discrete processes to the Black-Scholes set-up, as well as convergence for both American and European put options. Computational results revealed a smooth convergence structure and indicated that a quadratic order of convergences could be obtained using an extrapolation procedure.

Models, Prices and rates, Options (Finance), Lattice theory, Binomial theorem

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On the relation between robust and Bayesian decision making

Article Abstract:

Bayesian decision theory is compared with robust decision theory where the decision- maker optimizes with respect to the worst state realization. The results show that the limiting Bayesian problem displays infinite risk aversion and that decisions are insensitive to the precise assignment of prior probabilities.

Forecasts, trends, outlooks, Analysis, Forecasts and trends, Bayesian statistical decision theory, Bayesian analysis, Market trend/market analysis, Financial markets, Statistical decision, Statistical decision theory

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