Search results with tag "Binomial lattice model"

1 Geometric Brownian motion - Columbia University

1.5 The Binomial model as an approximation to geometric BM The binomial lattice model (BLM) that we used earlier is in fact an approximation to geometric BM, and we proceed here to explain the details. Recall that for BLM, S n = S 0Y 1Y 2 ···Y n, n ≥ 0 where the Y i are i.i.d. r.v.s. distributed as P(Y = u) = p, P(Y = d) = 1−p. Besides ...

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