The Application Of A New Type Of Binomial Parameter Model For Asian Options Pricing

Options are important derivative securities.As the status of derivatives becomes more and more signigicant in financial domain, it has been the research emphasis how to find more reasonable mathematical models for option pricing. Black-Scholes equation has given the analytical formula of standard European options . But, there has been no analytical formula for European options of complex income function and most of American options, nor the accurate solution. Therefore, there is practical importance to develop all kinds of numerical methods for American options pricing.The binomial tree is one of the numerical methods in common use. It is intuitive and easy to understand, and what's more , it can price not only the European options, but also the American options. The binomial parameter model which is often used now has defect-it will deduce negative probabilty under some circumstances. This article will construct the binomial parameter model again using the idea of moment in probability thoery. The new model will not get the negative probability and has high calculating accuracy. Therefore, it can be applied to various options pricing. By extending the binomial method, we can deal with path-dependent options, such as Asian options. Applying interpolation and the new binomial parameter model to the method would not only reduce the number of calculations, but also get the solution of high calculating accuracy.